(Un)Calculated Risk
Yesterday’s blog mentioned risk and suggested putting line items in for several types of risk. In speaking to Mitch Creekmore, The Latin American supervisor for Stewart Title, yesterday the thought of “catastrophe risk” came to mind. Mexico of course is bearing the brunt of the swine flu disaster so far. Many companies have eliminated all international travel. How many other markets will suffer from the swine flu?
Will this flue pandemic be a short lived and limited economic problem; or will it linger and poison an already slow recovery? How far from the tree will the fruits of this situation fall? Mexico is already suffering from low oil prices and reduced remittances. The 3rd leg of the 3 legged stool, tourism, seems to be cut off as well. What kind of factor would one put in investment projections to anticipate an event like this?
As the world becomes smaller and more integrated the possibilities for this type of event are increasing. Not just developing countries are affected. SARS hit several highly developed Asian Countries. Think what mad-cow disease did to the beef industry in Britain and the USA. Should we start another line-item in the risk portion of our cash flow models?
David Segrest is a REALTOR in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com
Showing posts with label risk and yield. Show all posts
Showing posts with label risk and yield. Show all posts
Monday, May 4, 2009
Wednesday, April 29, 2009
Investing in Emerging Economies
Investing in Emerging Economies
There has been a lot of talk about BRIC. For awhile it was said that they were not suffering from the economic downturn in the rest of the world. It is fairly obvious now that that is not the case. I have little experience in the Russia and India portion of the BRIC. I do not trust the government in Russia; so would find it hard to invest there. The only thing that scares me about China is it’s very size and the fact that is so manufacturing oriented. The rest of the world will have to recover before China can. There is also the tie to the US dollar. If the dollar goes in the tank, that will hurt the Chinese.
The countries I understand are the Latin American countries. Their economies are suffering some; but because of the use of cash and the underground economies there, they are in better shape, for the most part, than the rest of the world. The real benefit in Latin America is that the economies are small. The USA economy is like an aircraft carrier. It takes a long time to change direction or turn around. The Latin economies are like speed boats, they can spin on a dime.
I believe it is time to invest in Latin America. It is necessary to use a different model than most investors use in developed countries. The relationship between risk and yield are very important. When operating projections are made in the developed world, vacancy and credit losses are factored in. In the developing world one must also add line items for country risk and currency risk. In some cases one must consider political risk and environmental risk as well.
There has been a lot of talk about BRIC. For awhile it was said that they were not suffering from the economic downturn in the rest of the world. It is fairly obvious now that that is not the case. I have little experience in the Russia and India portion of the BRIC. I do not trust the government in Russia; so would find it hard to invest there. The only thing that scares me about China is it’s very size and the fact that is so manufacturing oriented. The rest of the world will have to recover before China can. There is also the tie to the US dollar. If the dollar goes in the tank, that will hurt the Chinese.
The countries I understand are the Latin American countries. Their economies are suffering some; but because of the use of cash and the underground economies there, they are in better shape, for the most part, than the rest of the world. The real benefit in Latin America is that the economies are small. The USA economy is like an aircraft carrier. It takes a long time to change direction or turn around. The Latin economies are like speed boats, they can spin on a dime.
I believe it is time to invest in Latin America. It is necessary to use a different model than most investors use in developed countries. The relationship between risk and yield are very important. When operating projections are made in the developed world, vacancy and credit losses are factored in. In the developing world one must also add line items for country risk and currency risk. In some cases one must consider political risk and environmental risk as well.
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