Poll: Are Businesses and Investors Unprepared for Geopolitical Risks?

Tensions resulting from economic sanctions and countersanctions by the West and Russia, an outcome of the ongoing crisis in Ukraine, seem to be escalating. The adverse effects of these sanctions are being felt across various sectors in Europe, including energy, food and beverage, automotive and beyond. The sanctions also seem to be producing unintended beneficiaries in other parts of the world, from China to Chile, as new trading partners are being sought by the affected countries.

Are global businesses and investors largely unprepared for such geopolitical risks? When we polled readers of CFA Institute Financial NewsBrief, nearly 60% of 684 respondents agreed or strongly agreed that businesses and investors are unprepared.

Economic sanctions and countersanctions by the West and Russia represent geopolitical risks for which global businesses and investors are largely unprepared.

Interestingly, research on sanctions shows that their effectiveness in achieving stated objectives is frequently contested, but the fact that they cause economic losses and human suffering is subject to little dispute.

There is a perception that today’s global businesses and investors are nurtured by a culture of economic rationality amid rising globalization. They are not well prepared to analyze political developments that defy economic rationality and break established trade ties.

Are such developments then simply unforeseeable risks, or is it possible to anticipate them through better geopolitical analysis? This question may be hard to answer, but the crisis in Ukraine is certainly forcing us to ask it.

For more on this topic: This year at the 2014 CFA Institute European Investment Conference, Philippa Malmgren of DRPM Group will discuss why the return of geopolitics is not random.

Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.