Be Wary of State-Owned-Enterprises
Foreign governments aren't always on your side.
A version of this article previously appeared in the August 2019 issue of Morningstar ETFInvestor. Download a copy here.
Developed markets like the United States, Europe, and Japan are relatively safe from a governance perspective. Publicly traded corporations in these markets are allowed to run their businesses relatively free from direct government intervention. Emerging markets like China and Russia are a different ball game. Countries like these are home to large state-owned-enterprises: publicly traded firms partially owned by the governments in their home markets. This ownership structure is a source of risk because governments may pressure these firms to prioritize government interests over those of other shareholders.
Daniel Sotiroff has a position in the following securities mentioned above: VEA. Find out about Morningstar’s editorial policies.