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Reducing exposure to sovereign risk

Daryl Guppy
Daryl Guppy10/1/2018 07:30 AM GMT+08  • 6 min read
Reducing exposure to sovereign risk
SINGAPORE (Oct 1): In investment terms, sovereign risk applies to a country where national policy decisions are anti-investment and may change quickly. It is most often associated with nations where corruption is high. The conditions of investment, includ
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SINGAPORE (Oct 1): In investment terms, sovereign risk applies to a country where national policy decisions are anti-investment and may change quickly. It is most often associated with nations where corruption is high. The conditions of investment, including taxation and expropriation, are changed at a whim.

Sovereign risk is not a term that you would expect to be applied to the US, but it is a concept that increasingly comes up in discussions with Chinese business and officials. There is growing concern that investment in the US is no longer safe from government action. The banning of Chinese telecom company ZTE Corp and the sanctions applied to China because of defence equipment purchases from Russia are seen as evidence of this increase in sovereign risk for existing and future investments.

Money is liquid and generally moves easily to avoid obstacles. China has already reduced its exposure to US Treasuries. For months, official policy has made it more difficult for state-owned enterprises (SOEs) and larger Chinese companies to invest in the US. Large companies such as Dalian Wanda have been encouraged to divest themselves of some US assets. Smaller companies have withdrawn from nearly completed deals. Others are actively looking to deploy capital elsewhere — but where?

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