By Asma Mohammed Aldeghaither, Assistant Manager, Alteia Capital
Country risk is one of the most significant sources of instability in investment portfolios which are built on trade Murabaha transactions, yet it is often not immediately visible.
A transaction may appear robust from all angles: strong counterparties, stable cash flows, and solid collateral, but when activities are concentrated within a single country, the portfolio remains exposed, even if each transaction is individually well executed.
In this type of investment, risk does not stem solely from the client. It also arises from factors beyond the control of all parties involved, including currency volatility, regulatory changes or government policies, sovereign decisions, as well as capital transfer restrictions, broader macroeconomic pressures and wider geo-political events.
When activities are concentrated within one country, these factors become a shared source of impact across the entire portfolio. Any country-level development can affect multiple transactions simultaneously, regardless of the strength of each transaction on a standalone basis.
Diversification and correlation
Portfolio diversification mitigates this concentration by reducing the degree of shared exposure across transactions. Each market responds differently to economic and political developments, including changes in interest rates, regulatory environments, currency behaviour, and political cycles. These differences across markets mean that diversification can mitigate concentrated single-country exposure, reducing the likelihood that multiple transactions or investments are affected at the same time.
In practice, geographic diversification helps reduce reliance on a single currency or regulatory environment, lowers the risk of simultaneous defaults, strengthens resilience during localized disruptions, and supports more stable returns over time.
Multi-market trade transactions
Trade transactions that extend across multiple markets contribute to diversification and risk distribution. These transactions typically involve parties across different countries — suppliers, traders, banks, and buyers — distributing reliance across multiple economic environments rather than concentrating it within a single jurisdiction.
However, this type of transaction also introduces additional complexity, driven by differences in legal systems, variations in enforceability, operational interdependencies among multiple parties, and differences in documentation standards. Without clear structuring and continuous oversight, such complexities can increase risk rather than mitigate it.
For this reason, this form of diversification requires careful assessment of investment cases such as cross border Murabaha transactions, encompassing due diligence on clear and enforceable legal frameworks, and ongoing monitoring of each transaction.
Domestic diversification
Diversification is not limited to expanding across borders.
In some cases, a portfolio can be fully constructed within a single country while still achieving diversification through a broad client base, sector variation, and diversity in commercial activities — including different types of goods, supply chains, and operating cycles such as import, export, and distribution.
For example, in Saudi Arabia, Alteia Capital provides trade Murabaha solutions in local currency, stable currencies, or USD-denominated structures, which are within underwriting and risk management frameworks specifically designed for the domestic market.
In such cases, diversification is achieved through disciplined transaction selection and structured portfolio construction, rather than geographic expansion alone.
Bottom line
Country-related risk is an inherent component of this type of investment. The key difference lies in how it is managed: concentration turns it into a portfolio-level threat, while diversification transforms it into a controllable risk factor.
This shift not only enhances stability but also supports long-term sustainability, enabling the portfolio to remain resilient across different market conditions.
Further information
If you would like to continue the conversation or learn more about Alteia’s approach to trade finance, you are welcome to connect with us on LinkedIn or reach out to the team at contact@alteiafund.com or infoksa@alteiafund.com.
Any discussion is informational in nature and subject to applicable regulatory and compliance considerations.
