Strategic Foresight: Reading the Risk and Resilience Map

From highly resilient hubs to fragile markets, the Global Investment Risk and Resilience Index offers a comparative view of global strengths and weaknesses, providing investors with data to anticipate disruption, assess resilience, and identify emerging opportunities across regions.

The Promise and Limits of Risk Indices

Geopolitical risk indices are something of a “Holy Grail” for political analysts. To wit, this analyst has worked at several firms across verticals ranging from energy to investing, and at each firm a risk index was often talked about and even sketched out but never executed. Which is why AlphaGeo and Henley & Partners should be commended for creating the Global Investment Risk and Resilience Index, a useful tool that helps investors make informed decisions about where best to grow and/or protect wealth, aligned with their priorities.

Before addressing how investors can best use this data, it is worth noting some important methodological considerations. Analysis, whether qualitative or quantitative, is by nature an ambitious exercise. It seeks to render inherently complex, dynamic phenomena such as politics stable enough to be measured and evaluated.

Like all indexes, the AlphaGeo/Henley & Partners model is shaped by the data that is most consistently available. To enable comparisons across diverse geographies and cultural contexts, the index draws on information that is inherently retrospective. It is therefore best understood not as a crystal ball, but as a snapshot of relative risk and resilience backed by an extensive and rigorous trend-line of previous years. Inevitably, in some cases the data may also reflect how political actors present their jurisdictions as they wish them to appear, which is itself an insight worth noting.

Validating Investor Assumptions

The more powerful and potentially useful a piece of analysis, the more important it is to use it to its greatest impact, and these factors highlight how the index should be applied: as a guide to sharpen investor judgment and maximize the value of complementary analysis. Used in this way, it becomes a powerful tool to enhance a holistic framework for investors for evaluating geographies in the context of their goals, enabling better and more efficient decision-making.

For example, Switzerland ranks 1^st in the Global Investment Risk and Resilience Index, which considers both risk and resilience, and is also the lowest risk and highest resilience state in the world. Singapore comes in 4^th overall, with its ability to weather political shocks offsetting a slightly higher Total Risk Score compared to the top three countries. This data confirms Bespoke Group’s analysis of both countries, a thesis that was built on seeking out currencies likely to appreciate against the US dollar over the long term, owing to strong fiscal and monetary policies; niche industrial champions with high barriers to entry; low competition; a history of performance; and innovation-driven policies backed by longstanding structural advantages. In this sense, the index is a powerful confirmation of well-developed positions as well as a useful tracker for potential challenges to these analytical models.

When Risk and Resilience Collide

The index is not only valuable for confirmatory data, however. China should represent a significant potential opportunity in an increasingly multi-polar world as it possesses levels of human capital and manufacturing know-how developed over generations — intangibles that will not be easily developed by its rivals and which could outweigh several of its own deficiencies (such as deflationary demographics and authoritarian consolidation of political power). The index identifies China as medium risk — indeed, states like Indonesia are seen as less risky — while classifying its resilience as high, good enough to be in the Top 30 worldwide.

Here, the index is highlighting the most valuable data point for anyone seeking deeper analysis and understanding: a contradiction. A qualitative analysis of China’s risk and resilience environment could plausibly craft a very different picture than the quantitative one generated by the index. Moreover, the index shows China as a place of (relatively) elevated risk, while at the same time functioning as a geography of tremendous potential resilience, a combination that may seem counterintuitive given its recent history. Rather than offering a definitive answer, the index identifies a critical center of gravity that a decision-maker must wrestle with before deciding one way or another.

In short, no index can or should be treated as a ‘Magic 8 Ball’. The true value of the tool AlphaGeo and Henley & Partners have developed lies in helping investors seeking growth and predictability to make more efficient decisions, and in challenging conventional views of relative risk and resilience across geographies in a volatile and dynamic geopolitical context.