Who are you gonna call when a government takes your money? Investors sometimes forget that the flip side of potentially supernormal returns is extreme risk, and one of the biggest risks of all is when governments simply expropriate assets. For example, South American countries, helped by the likes of Venezuela and Argentina, account for 30 per cent of all cases registered with the International Centre for Settlement of Investment Disputes, the arbitration body that deals with fights between investors and states.
Unsurprisingly, the developing world makes up the bulk of governments taken to task by companies. Just 6 per cent of cases concern North American and western European countries. That said, the latest claim is against Belgium, filed by Ping Anlast week. China’s second-biggest insurer is peeved that its 5 per cent stake in Fortiswas wiped out when the Dutch-Belgian bancassurer was broken up and nationalised in 2008. Forget the irony of a Chinese company complaining that it has been compromised by a state-backed directive. More important is that Ping An is refusing to be seen as just a silent money pit, unlike those Middle Eastern sovereign wealth funds that seem to love quietly losing billions.
One irony worth noting, however, is that international arbitration can actually be good for business. In the late 1980s, Argentina used to sign bilateral investment treaties in order to spur foreign interest. The message: you have a chance of getting your money back! Likewise, if Ping An receives a fair hearing now – or, heaven forbid, actually receives compensation for its Fortis loss – Chinese companies will be reminded that overseas investing at the very least comes with the ultimate in checks and balances.