Roger Grabowski and Jim Harrington were featured this morning by CFO.com, as lead analysts on the loss of value in Egypt as the country faces new political change. Roger points out how exposed investment capital is, in particular, in the CFO.com analysis:
"Buying a company, expanding a plant, adding new product lines — capital expenditures are not like buying stock, where two days later you can flip it if things don't work," says Grabowski. "The real issue in emerging markets is that you're committing money for long-term investments, but the risk mitigation — like currency hedging — is available only for the short term."Any one responsible for financial reporting faces another risk with international investments also needs to adapt their asset pricing, yield spread, or credit rating models to the individual situation. "One of the problems we see is that CFOs adopt one model that may not be appropriate for the circumstances in a specific country or for a specific investment," Grabrowski told CFO.com.
CFO.com offers the following example of this problem:
Many cost-of-capital models require historical data on bond and stock market returns, which is used to get an idea of the returns investors demand in different markets. But some emerging countries don't have stock markets, or their stock markets are not as diverse as those in developed countries, so one industry or company can have an inordinate impact on returns...One example is South Africa, where mining and minerals companies predominate."If I'm a food company in South Africa, the stock market data doesn't help me see how my industry risks are being assessed in that country's market," Grabowski said.