KPMG Industry Updates - Issue 4, June 2013
Risks of investing in a foreign country, dependent on changes in the business environment, may adversely affect operating profits or the value of assets in a specific country. Examples of specific risk may include: inconvertibility, devaluation or other currency controls, expropriation of assets, regulatory changes, as well as civil unrest. These risks represent the possibility of significant loss, and should thus be planned for carefully prior to investing overseas. Overseas investment risk insurance can be an effective method for diversifying political risk. However, due to relatively lower risk awareness, complex claim procedures, and relatively high premiums, coverage in emerging and developing markets is often lower than that of developed markets. Therefore, it is important to not only understand foreign countries’ political regimes prior to investing, but also understand the options available to diversify away from potential political risk situations. Sinosure is one example of a Chinese overseas investment risk insurance company; it offers comprehensive insurance tools, project consulting and credit rating services to encourage investment in the global market. As more Chinese investors look to invest outward in emerging and developing countries, more education and attention should be given to the companies that offer investment risk insurance.