Nov. 23, 2020
USC’s Folks Center for International Business and Risk and Uncertainty Management Center recently hosted an online forum featuring financial and risk expert Preston Keat who discussed the biggest global financial risks for 2021. Close to 500 registrants from a cross-section of business, government and academia attended the event.
The forum was sponsored by The Rachel and Jim Hodges Fund, generously given by the former South Carolina governor and his wife.
Keat is a managing director and head of political and country risk for UBS, which is one of the largest and most influential global financial services firms in the world. They provide services to 50 countries. Based in London, Keat oversees the bank’s political and country risk team; he also leads the firm’s internal “Economist Forum” and “Risk Think Tank.”
The UBS political and country risk team analyzes a broad range of economic and macro/geopolitical themes and trends and manages country ratings and exposure limits.
Beginning the forum discussing the COVID-19 pandemic impact, Keat emphasized that the full extent of the political and international risks aren’t fully decipherable. He said that economists have varying opinions on the economic recovery as the pandemic continues.
“Some industries are recovering [like restaurants], while others are not — hospitality and travel,” he said. “The contraction of the gross domestic product is the sharpest and largest and quickest ever — way worse than the Great Depression, which happened over many years. This year’s contractions are unprecedented; all of the models don’t know what to do with that. Add to that the uncertainty of the shapes of recovery.”
Keat noted that debt spending has kept most countries’ economies afloat in 2020.
Debt spending “is a sound public policy. The developed markets have done the right thing with huge multi-trillion-dollar relief packages,” he said. “Many emerging markets don’t have the capacity to do that. Over the course of the year, there is a much-increased risk profile for emerging markets.”
Further complicating international relations as a result of the pandemic, typical cross-border flows of people, capital and goods have been reduced in many countries. While Keat said he expects the cross-border flows to resume within the next 18 months, the pandemic massively accelerated the regionalization of trade and supply chains. This means instead of relying on goods from global supply chains, many nations are minimizing the distance where their supply chains operate and are becoming more reliant on closer or domestic goods.
During his talk, Keat specifically focused on South Carolina’s foreign capital flows and supply chains; he said when BMW came to Spartanburg, South Carolina, in 1992, the state “massively” benefited from the foreign direct investment. Later, when Boeing came to North Charleston, South Carolina, in 2011, the state’s export profile was further enhanced.
“The questions would be — how does this play out in an era where globalization is morphing and changing and slowing down in some respects,” Keat said. “Ending with a note of optimism, regionalization plays to South Carolina’s advantage.”
In response to a question posed at the end of Keat’s discussion, he posited that so much of the risk in 2021 will be tied to the continued COVID-19 coordination and vaccine protocols.
“There is a very good chance of international coordination for the [hopeful] vaccine,” he said.
He said early predictions for 2021 see trade with U.S. allies resetting, though the relationship with China will continue to be contentious, especially as the two countries wrangle with the coordination of intellectual property and their roles as strategic technology rivals.
Much of the world is focusing on the transition of power in the United States, Keat added. With the new administration taking office in January, he said the U.S. will likely re-enter the Paris Agreement for climate change and will likely re-engage with the World Trade Organization as well as reinstate some other aspects of diplomacy.
Before taking on the role of UBS’s political and country risk expert, Keat worked for 10 years at the political risk consultancy Eurasia Group, where he was a research director, head of the Europe practice and a member of the management committee. He is the co-author of The Fat Tail: The Power of Political Knowledge for Strategic Investing published by the Oxford University Press in 2009. Keat has a Ph.D. from the University of California, Los Angeles, a master’s from the London School of Economics and a bachelor’s from the College of William and Mary.