Real-world examples of assessing political risk in international investments

Why start with real examples of assessing political risk in international investments

Political risk sounds fuzzy until you connect it to specific events: a surprise election outcome, a currency control, a sanctions package, a nationalization threat. The best examples of assessing political risk in international investments show how those events translate into:

• Earnings and cash flow risk
• Currency and capital controls
• Contract and property-rights risk
• Tax and regulatory shifts
• Physical security and operational disruption

Institutional investors lean on specialized providers like the World Bank, IMF, and political risk consultancies, but the underlying logic is accessible to any serious investor. You’re trying to answer three questions:

• What political events could realistically happen here?
• How would each event affect my investment’s cash flows and valuation?
• What is the probability and timing of those events?

Let’s walk through concrete examples of assessing political risk in international investments across different regions and asset classes.

Example of political risk: Russia, Ukraine, and the “uninvestable” call

One of the clearest recent examples of assessing political risk in international investments was how global investors treated Russia before and after the 2022 invasion of Ukraine.

Pre‑2022 risk assessment

Many investors were already applying a significant political risk discount to Russian assets:

• Sanctions overhang from the 2014 Crimea annexation signaled that further aggression could trigger broader sanctions.
• High state involvement in strategic sectors (energy, banking) raised expropriation and governance risk.
• Democratic backsliding and concentration of power increased the probability of unpredictable decisions.

Professional managers modeled scenarios such as:

• No invasion (status quo, slow growth, sanctions steady)
• Limited incursion with targeted sanctions
• Full invasion with sweeping sanctions and potential asset freezes

Each scenario had a probability and implied impact on earnings, dividends, and the ability to repatriate capital.

Post‑invasion outcome

When Russia invaded in February 2022, the worst‑case scenarios largely materialized:

• Western sanctions cut off major banks from SWIFT and restricted access to reserves.
• Foreign investors saw Russian equities effectively wiped out in global portfolios as trading halted and assets were frozen.
• Index providers like MSCI and FTSE removed Russia from emerging market indices, turning it into an off‑index, “uninvestable” market.

Investors who had taken political risk seriously—by limiting exposure, demanding higher required returns, or exiting early—were far better positioned. This is a stark example of assessing political risk in international investments where tail risk was visible, but not everyone priced it correctly.

For background data on sanctions and country risk, investors often review resources from the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC): https://home.treasury.gov/policy-issues/financial-sanctions

Emerging markets: examples of assessing political risk in international investments

Emerging markets give some of the clearest real examples because politics can move markets overnight.

Brazil: pension reform and market repricing

Brazil offers a textbook example of how policy reform risk drives valuations:

• In the late 2010s, Brazil’s fiscal position was under stress, and investors focused heavily on whether pension reform would pass.
• Asset managers built scenarios around reform success vs. failure, adjusting expected debt trajectories, growth, and currency stability.

When the government pushed through a significant pension reform package in 2019, the political risk premium shrank:

• Brazilian equities rallied as long‑term fiscal sustainability improved.
• The currency stabilized relative to worst‑case fears.

Here, the assessment was not just “Brazil is risky,” but a specific forecast: Will this government deliver this reform, and what does that do to the numbers? That is a clean example of assessing political risk in international investments by connecting legislative probabilities to valuation.

Turkey: central bank independence and currency risk

Turkey has been a live case study in monetary policy interference:

• Investors watched repeated dismissals of central bank governors who resisted keeping rates low despite high inflation.
• Each dismissal increased the perceived probability that inflation would stay high and the lira would weaken further.

Risk‑aware investors responded by:

• Demanding higher yields on lira‑denominated bonds.
• Shortening duration or avoiding local‑currency debt altogether.
• Using hedging or simply limiting exposure to Turkey.

This is one of the best examples of assessing political risk in international investments where the key variable is institutional credibility rather than outright conflict.

Developed markets are not immune: examples include Brexit and U.S. policy swings

Political risk is not just an emerging markets story. Developed markets provide their own real examples.

Brexit: regulatory and market access risk in the U.K.

The 2016 Brexit referendum created a long, messy period of uncertainty:

• Banks and insurers had to reassess whether they could continue to serve EU clients from London.
• Manufacturers questioned whether supply chains would face tariffs or customs delays.

Investors assessing political risk in U.K. and European assets asked:

• Will there be a hard Brexit, soft Brexit, or no Brexit?
• How will each outcome affect market access, labor mobility, and regulatory alignment?

Portfolio decisions included:

• Underweighting U.K. small caps more exposed to domestic demand and regulatory changes.
• Favoring multinational U.K. firms with diversified revenue streams.

This is a concrete example of assessing political risk in international investments where the issue was legal and regulatory fragmentation, not regime collapse.

U.S.–China tensions: tech export controls and supply chain risk

The U.S.–China relationship has become a standing political risk factor:

• U.S. export controls on advanced semiconductors and manufacturing equipment have direct implications for Chinese tech firms and global chip supply chains.
• Investors in both U.S. and Chinese tech names now model scenarios around additional bans, investment restrictions, or sanctions.

Assessment steps include:

• Mapping company revenue and supply‑chain exposure to restricted technologies.
• Stress‑testing earnings if certain markets or inputs become unavailable.
• Watching policy signals from agencies such as the U.S. Department of Commerce’s Bureau of Industry and Security (BIS): https://www.bis.doc.gov/

Again, this is an example of assessing political risk in international investments where geopolitics and technology policy intersect.

How professionals structure the assessment: from headlines to cash flows

Behind these real examples of assessing political risk in international investments is a fairly systematic process. Most serious investors combine:

Country risk scoring
They use multi‑factor indices that capture:

• Political stability and absence of violence
• Government effectiveness and regulatory quality
• Rule of law and control of corruption

The World Bank’s Worldwide Governance Indicators are a widely used reference: https://info.worldbank.org/governance/wgi/

Event‑based scenario analysis
Instead of trying to forecast politics perfectly, investors:

• Identify key events (elections, referendums, constitutional changes, sanctions decisions).
• Assign probabilities to different outcomes.
• Estimate the impact on GDP, inflation, currency, sector earnings, and valuations.

Market‑based signals
They cross‑check political analysis with:

• Sovereign bond spreads versus U.S. Treasuries
• Credit default swap (CDS) prices
• Currency volatility and forward rates

When spreads or CDS jump while headlines are still quiet, that’s often the market’s early warning on rising political risk.

Sector‑specific examples of assessing political risk in international investments

Political risk is not evenly distributed across sectors. Some industries are lightning rods.

Energy and natural resources: expropriation and windfall taxes

Resource‑rich countries sometimes change the rules after investors sink capital into mines, oil fields, or pipelines. Examples include:

• Latin American resource nationalism: Investors in oil and mining projects in countries like Venezuela and, at times, Bolivia and Ecuador have faced nationalizations or heavy contract renegotiations.
• European windfall taxes: After the 2022 energy price spike, several European governments imposed extraordinary taxes on energy producers, hitting profits even in otherwise stable jurisdictions.

When assessing political risk here, investors look at:

• The country’s history of honoring contracts.
• Public sentiment toward foreign investors and “excess profits.”
• Fiscal pressures that might tempt governments to grab more revenue.

This is a recurring example of assessing political risk in international investments: you model not just commodity prices, but the probability that the government changes the deal.

Technology and data‑heavy businesses: privacy, censorship, and localization

Tech and internet companies face political risk around:

• Data localization laws
• Content regulation and censorship
• Antitrust and digital services regulation

The EU’s General Data Protection Regulation (GDPR) and the evolving Digital Services Act (DSA) have forced global platforms to adjust operations and compliance budgets. Investors now assume higher regulatory costs and legal risk when valuing these businesses.

Here, good examples of assessing political risk in international investments involve:

• Tracking draft regulations and enforcement patterns.
• Estimating compliance costs and fines.
• Stress‑testing user growth or monetization if certain features are restricted.

Practical playbook: how an individual investor can assess political risk

You don’t need a dedicated risk team to apply the same logic. For a retail or smaller institutional investor, a workable process looks like this:

Start with a country checklist
Before buying an ETF, bond, or stock with significant foreign exposure, ask:

• How stable has the government been over the last 10–20 years?
• Are elections competitive and broadly accepted, or contested and violent?
• How independent are the courts and central bank?
• Is there a history of capital controls, nationalizations, or sudden tax hikes?

Use free data and research
Helpful sources include:

• World Bank country data and governance indicators.
• IMF Article IV reports for macro and policy assessments: https://www.imf.org/en/Countries
• U.S. State Department country information for political and security context: https://www.state.gov/countries-areas/

These won’t give you trading signals, but they anchor your understanding of baseline risk.

Connect politics to portfolio mechanics
For each holding, think through:

• Can this company or fund be hit by sanctions or capital controls?
• Does it depend on government licenses, concessions, or subsidies?
• How exposed is it to regulated prices (utilities, telecom, healthcare)?
• Is revenue concentrated in a single high‑risk country?

This is how you create your own examples of assessing political risk in international investments tailored to your portfolio, rather than relying on vague country stereotypes.

2024–2025: new fronts for political risk investors are watching

As of 2024–2025, several themes are shaping how investors think about political risk globally:

Election super‑cycle
A large share of the world’s population is going through national elections in this window, including key markets in Asia, Latin America, and Europe. Investors are:

• Tracking platforms on trade, taxation, and regulation.
• Watching for populist proposals that could hit specific sectors (banks, utilities, tech, energy).

Climate and energy transition policy
Net‑zero commitments and climate politics are driving:

• Carbon pricing and emissions regulations.
• Subsidies and industrial policy for green tech.
• Restrictions on fossil fuel development.

For investors, an example of assessing political risk in international investments here is comparing a country with stable, bipartisan support for climate policy versus one where climate rules swing wildly with each election.

Geoeconomic fragmentation
The IMF and World Bank have been warning about “geoeconomic fragmentation” as countries rewire supply chains around security concerns, not just cost. That creates political risk for:

• Export‑dependent economies tied to a single major market.
• Companies deeply embedded in cross‑border supply chains.

Investors who treat these as static will be surprised; those who build scenarios around trade blocs, tariffs, and export controls are already doing the kind of assessment this article is about.

FAQ: examples of assessing political risk in international investments

How do you find real examples of assessing political risk in international investments to learn from?
Start with major recent events: Russia–Ukraine, Brexit, U.S.–China tech tensions, Turkey’s monetary policy, or Latin American resource nationalism. Read post‑mortems from asset managers and research houses that show how they modeled scenarios and adjusted positions before and after these events. Many publish free commentaries that walk through their political risk thinking in detail.

What is a simple example of political risk affecting a stock or ETF?
Consider an emerging market bank ETF heavily weighted to a country where a populist candidate is leading in the polls on a platform of capping interest rates and forgiving certain debts. If that candidate wins, bank profitability could fall sharply. A risk‑aware investor would spot this early, monitor polling data and policy proposals, and possibly reduce or hedge exposure ahead of the election.

Are developed markets safer from political risk than emerging markets?
They are usually more predictable, but not immune. Brexit, U.S. debt‑ceiling standoffs, and European windfall taxes all hit asset prices. The difference is often in the magnitude and frequency of shocks, not their existence. The best examples of assessing political risk in international investments treat every country—developed or emerging—as having a political risk profile that needs to be understood and priced.

How can I factor political risk into my required return?
You can adjust your discount rate or required yield upward for higher‑risk countries, based on sovereign spreads, governance scores, and your own scenario analysis. If a bond from a politically volatile country yields only slightly more than a bond from a stable country, that’s a signal the extra political risk may not be adequately compensated.

What are warning signs that political risk might be rising in a country I’m invested in?
Common red flags include: increasing attacks on central bank or judicial independence, sudden constitutional changes aimed at extending terms, aggressive rhetoric toward foreign investors, rising protests or civil unrest, and widening sovereign spreads or CDS prices without a clear economic trigger. When these show up, you should be building your own updated examples of assessing political risk in international investments and deciding whether your exposure still makes sense.