Risk appetite is set to rise this year, according to a Beazley report on the investment environment in emerging markets in 2015, and demand for political risk and trade credit insurance. Beazley is the parent company of specialist insurance businesses with operations in Europe, the US, Asia, Middle East and Australia. Its report expects insurance demand to increase as a result of the economic consequences related to war, civil disruptions or terrorism. It also predicts more demand for protection against governments terminating contracts or recalling export licenses. The wrongful calling of contractual bonds will rise by 10%, the report stated.
"I think recent events between Russia and Ukraine have focused a lot of people’s minds on the risk of investing in politically unstably countries around the world," said Roderick Barnett, Beazley’s trade credit and political risk underwriter. He added that, more recently, there has been a slowdown in banks deciding to lend to projects in less predictable parts of the world.
Mr Barnett said that investments in difficult parts of the world are still worth pursuing. The report highlighted parts of sub-Saharan Africa, Argentina, Bolivia, Nigeria, Myanmar and Russia as markets to watch.
Sub-Saharan Africa has seen large inflows of investment and trade in past years. Mr Barnett agrees that there are pockets of instability in various countries in the region; however, many of them do require significant investments in infrastructure, power and telecommunications. "I think investors are not completely put off by the risk of governance and we will continue to see strong demand for the following years," he said.
The forthcoming presidential election in Argentina could have a positive influence on investors if candidate and entrepreneur Daniel Scioli succeeds, said Mr Barnett. He also noted that Beazley is looking at investments where it is willing to cover risks such as nationalisation.
As for Myanmar, there is a low level of mobile usage, so large telecommunications companies are interested in investing there and increasing penetration. In Bolivia, president Evo Morales has ruled out more nationalisations following his re-election in October 2014. The report emphasised that economic growth with a friendly approach to foreign investment can attract investors back to the country.
"The message is that although some countries look tricky to invest in, investors should not be put off by the political risk surrounding these countries’ environments," Mr Barnett said. He added that Beazley is looking to actually pay out claims to their clients that have invested in regions such as eastern Ukraine before the environment was so volatile – and these investors benefited from the company’s protection.