Page 41 - BFSI CHRONICLE 10 th Issue (2nd Annual Issue ) 23062 COPY.indd

BFSI Chronicle, 2 Annual Issue, 10 Edition July 2022
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of adverse geopolitical events often heads around the world is palpable in public domain.
towards resolution of uncertainty tending to Based on the findings of Gallup 2017 survey
attenuate the adverse impacts. of popular responses, geopolitical risk has
been ranked ahead of political and economic
In quest of improved margins, speed and uncertainty. Bank of England (Carney (2016)
customisation, economic agents often extend
included geopolitical risk as one of the
their overseas supply relationship taking constituent elements of ‘uncertainty trinity’;
incremental exposure to the risk of supply the other two being economic and political
disruption due to geopolitical actions.
uncertainty. European Central bank and
Rise of populist and anti-establishment IMF identified geopolitical risk as salient to
political movements in some of the world’s economic prospect and outlook.
largest economies has exacerbated political Examples of Geopolitical Risk
uncertainty for investors in the world at
large. More readiness on the part of political Expropriation & breach of contract
actors to endorse government intervention in
Governments confiscating / nationalising
economies and more regulation of business
are now palpable. Amidst sustained economic assets, Government reneging on contracts,
hardship from the ongoing pandemic there imposition of embargos or prohibition of trade
with specific countries, politically motivated
persist potential risk of increasing popular
support for politicians promising deep- credit default come under this category. Risk of
expropriation or nationalization of assets often
seated changes in underlying policy inducing
escalated regulatory uncertainty for investors escalate during times of economic challenges.
and business generally. Investments in extractive industries (viz.,
mining and oil and gas) are generally more
With gradual moderation of effects of COVID- susceptible to these risks as Governments
19’s, countries are likely to embark upon fall back upon these investments to augment
structural changes in healthcare and related revenue. While tendencies to resort to resource
sectors. Soaring of asset price triggered by nationalism has since abated to some extent,
central banks’ quantitative easing engendered it however continues to be a powerful tool
inflation risk with attendant political challenges. for governments facing economic distress.
There ought to be eventual unwinding of In cases of expropriation and nationalization
quantitative easing. This may lead to a return to key questions for investors are whether they
politically unpopular austerity, or, alternatively, receive adequate compensation for their losses
radical changes in tax policy. Businesses in all and whether they are afforded any protection.
likelihood would have to bear much of the
burden of such measures. The persisting impacts of the pandemic on
certain economies may also pose issues for
Geopolitical risks are considered by economic cross-border investors. Low key economic
agents, regulators and market players as key activity and fall in revenues while government
determinant of investment decisions and stock spending is on the rise due to measures taken
market dynamics. Anxieties and worries about to mitigate the pandemic effects, may trigger
possible adverse economic impacts of various sovereign debt default by some countries. Such
diplomatic and military conflicts happening countries in resource crunch might impose

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