Sovereign debt rather than banking collapses are the new worries for global investors. For hotel investors the scare should be a welcome reminder that country risk remains.
But right now, the risk does not appear to be with the usual suspects – emerging markets – but rather with indebted industrialised countries.
The acronyms of the moment are PIIGS, referring to Portugal, Italy, Ireland, Greece and Spain, and STUPID, Spain, Turkey, UK, Portugal, Italy and Dubai.
The former countries are usually described as peripheral members of the Euro zone and are seen as vulnerable by bond traders due to ballooning government deficits and struggling economies. The latter are the bigger economies that are viewed as posing a wider systemic risk to global finances.
The sovereign default risk matters for two reasons: firstly, as governments struggle to rein in deficits, drastic cuts in public services cause dramatic drops in demand for hotels; and secondly, there is a significant risk to the underlying hotel investment itself, either through devaluation or in extreme cases, such as Venezuela, through government expropriation.
The impact of the devaluation in Venezuela's currency was substantial for Accor, for example. It wiped Eu39m from 2009 operating profits. And in October last year, the Venezuelan government seized a Hilton managed resort on the island of Margarita.
HA Perspective: There is no clear answer here: sovereign risk can cause subdued business performance in industrialised countries and the prospect of devaluation can cause an otherwise sound cross border deal to lose money.
But the big risk, the lose it all level of gamble, only remains likely in emerging markets. And for this, even if is remote, the level of returns should continue to be significantly ahead of those in the established industrial countries, even with the latter's likely slower growth.