Toronto CFA Sociey - The Geopolitics of Investing

At lunch today, I went to my first Toronto CFA event (where I am an Associate Member). The speech was given by Pierre Fournier, Geopolitical Analyst, National Bank Financial at the National Club.

His talk covered a broad range of topics as they related to investing in foreign and emerging markets (such as the BRIC countries: Brazil, Russia, India and China). When asked at the end of his presentation which country he liked best, he responded with 'Brazil', for it's long term outlook, resource base and demographically young population.

In his team's specific role, he described this small foray into geopolitical analysis as a comprehensive peek at research and analysis relating to current geopolitical challenges facing investors in major foreign and emerging markets. He framed geopolitical analysis as focusing on the political structure of governments as well as their relationship with super powers. He described systematic risk in this arena as event risk based on or affecting the international investment system versus country specific risk and characterized the new challenges facing emerging countries as based on economic power struggles rather that the outmoded ideological struggles (ie. as a resource race rather than communism versus democracy). He described the decline of the US as a super power to resulting in multipolar rather than unipolar and the move away from unilateral as moving away from a "nice to have" towards a necessity.

There are other notable changes as well when investing on foreign soil. Rather than nationalization and outright appropriation being a challenge, hostile countries will now rather increase taxation and regulation in order to 'show you the door'. These more subtle tactics may make investors feel safer on the surface, but are a much more subtle way to indicate that you've outstayed your welcome.

In terms of Obama's plans for the US, there comes an interesting challenge as it relates specifically to oil. On one hand, the country aims to have more energy security, however on the other side getting at oil poses significant environmental challenges, a seemingly disparate and irreconcilable challenge (perhaps a good integrative thinking question). Pierre went on to predict that China's move into the Calgary oil sands project would probably move forward after approval from the Investment Canada Board and result in increase M&A activity, China continuing to search for more resources resulting in a squeeze for the US.