political risk #investments
There is always some political risk when it comes to investing. The prehistoric tendency for one tribe to go to war with another still exists. We might have developed supercomputers and space travel but many people still have Neanderthal ideas. It makes it difficult for those of us who want a world of entertainment, peace and security.
The European Union
The referendum in June to decide whether Britain leaves the EU is the current political risk. While a common market can help poorer countries, citizens travelling from poorer countries to richer ones puts a strain on both countries. Poorer countries lose their highly skilled professionals like doctors and nurses. Richer countries find car washes popping up everywhere manned by workers from poorer countries who want to earn a living, but need much more and demand housing, education and healthcare. Politicians with their idyllic dreams didn’t think it through and so we have a nation split down the middle and in true Neanderthal style, the side that makes the most noise could win the argument.
The junior doctors withdrew their labour this week, because of another political decision that wasn’t thought through. Capital can be withdrawn too and the stock market dropped again as investors became more nervous. Some will say it doesn’t matter because it’s only the rich losing money, but it is also small investors. Shouldn’t the means of production belong to the people rather than the privileged few? Nationalisation is often thought to be the solution to that dilemma, but then the government is in control. Politicians never think things through. Small investors play with their own money, they have to think ahead. There does appear to be a trend towards solving some of the European problems and so little light at the end of the tunnel. There is a little upward movement in the oil price, albeit caused by the weakness in the dollar. In the end, markets look at supply and demand. The supply of oil is dropping as some producers find it uneconomic. The supply of capital has also dropped as investors look around for safer and more rewarding bets. Another major company looks like going into administration and the demise of BHS will mean a cut in supply and an opportunity for investors. Who will benefit? While many investors are worried other stores could follow suit, smart investors are looking at who will pick up extra sales when BHS closes its stores. I think this could be the boost Debenhams needs, for example.
Political risk comes in all shapes and sizes. It can emanate from our government, from the EU or some foreign government. It can even be a regional or local government that causes uncertainty. We have to take educated guesses at what the Neanderthals will do next and invest accordingly!
I mentioned Premier Oil in a post a few weeks ago. Their share price is up over 5% again this morning. The share price was 34p when I started monitoring it. It is 77.5p today on a rising oil price. I should have bought at 34, but decided to wait. I waited too long! Will it continue to appreciate? Who knows? The risks and the uncertainty make it vulnerable to political risk.
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