Standard Life Investments

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Imagine, if you will, a knock on your door from a government official who informs you that something you own and thought you’d bought fair and square – your car, say, or maybe your house – is no longer your property. Far-fetched? Perhaps. But in a sense, it has happened in the corporate sphere – and it is something that could ultimately leave a mark on your investments.

Argentina’s recent efforts to nationalise the country’s largest oil company, YPF, may not have occupied much time on the news channels, yet we ignore it at our peril. The efforts of President Cristina Kirchner and her government to re-nationalise South America’s largest oil company is a matter of genuine concern – not least to Repsol, the Spanish conglomerate that bought a majority stake in it when it was privatised in 1999. Threats of retaliation from Spain have already materialised; condemnation has appeared from other countries as well. But this expropriation has not come out of the blue. Only this year Argentina entered into a period of fiscal austerity, one which the government refers to euphemistically as Sintonía fina (fine tuning) but which seems to be leaving its mark on the population. Having already nationalised private pension funds and re-nationalised the country’s flagship airline back in 2008, Mrs Kirchner’s government is unlikely to back down in the face of international criticism. And if her initiative is seen to achieve its aims, might other embattled countries follow suit?

It’s a familiar enough theme – politicians fuelling populist sentiment when times are hard – and not just confined to faraway shores. One need only look at the record level of support for the far-right National Front in France’s presidential election, at a time when unemployment is at a 12-year high. Meanwhile, and on the other side of the political spectrum, campaign pledges from the socialist candidate, Francois Hollande, included a renegotiation of the budget discipline pact imposed on the Euro-zone last December. The very idea of this was enough to make markets quiver.

There’s little doubt that the current age of austerity has increased the likelihood of sudden political shocks. Few could have imagined the abrupt fall of the government of the Netherlands – one of the steadier economic performers of the Euro-zone – when a dispute over budget cuts led to the collapse of the ruling parliamentary partnership. Nor is political risk confined to fiscally constrained countries. In Russia, Vladimir Putin faces accusations of reneging on campaign pledges to make the political process more democratic. And we have surely not seen the last of the upheavals in the Arab world, as anyone who followed the recent Bahrain Grand Prix might suspect.

In their quest to make money, investors face all manner of risks. But in amongst the considerable financial and economic obstacles markets are currently wrestling with, it is easy to dismiss or overlook geopolitical events that don’t always reach the financial pages. For active managers, these can represent genuine investment opportunities. My regular discussions with the strategic thinkers at Standard Life Investments help me to piece together this fractured investment landscape – and to consider how best to put clients’ money to work.

Bambos Hambi, Head of Fund of Funds Management, Standard Life Investments

This article was first published in Investment Adviser on 14th May 2012