CIty Risk

In investing country risk is the general risk from the political conditions of a country as distinct from the particular risk of a specific investment. It can come from present or expected internal conditions such as the rise of a maximum leader or generalissimo for life who might decide to expropriate foreign owned property or default on government bonds.  It can be part of the cultural background of a place such as a general lack of respect for property rights or the rule of law. It can be the result of an external threat such as the one now faced by Hong Kong.  Whatever the causes, country risk is something for prudent investors to consider in deciding whether to invest in a place and, if they decide to, what extra return or opportunity they would want to justify the risk.

The United States is usually considered to be one of the places with the lowest country risk, and is a place where foreign investors seeking safety often put their money.  However this country is not homogenous in terms of its government. Local governments have a lot of authority, and their polices and behavior vary significantly.  I think careful investors may  start considering city risk, particularly with regard to real estate.  In Minneapolis for example members of the city council have announced plans to abolish the city’s police department. Whether they go through with it or not, that is the political environment of the place. It is hard to see how a prudent person would want to build, invest in, or accept as collateral a building in that town, or how a corporate officer could do so without failing in his fiduciary duty to shareholders.  There are other cities where  leftist politicians, capricious regulation, corruption, and failure to maintain public safety and civil order create risk.  The greens have their ESG funds which brag self-righteously about not investing in energy, tobacco, defense, and other frowned on things (and presumably not going out with girls who do).  If there is not one already, someone probably could make some money creating a REIT that invested in real estate only in places with low city risk.   

Of course the considerations about investing in a place apply also to the question of whether one would want to move to it or to stay if he were already there.