The wave of mass protests across the Middle East this month has raised questions about whether investors are underestimating the political risk in emerging and frontier markets.
Emerging market funds enjoyed a surge in popularity towards the end of last year, which saw several frontier market fund launches.
Last week mass protests flared up in Egypt, the largest Arab country, after breaking out in Algeria, Jordan and Yemen. In Tunisia, President Zine El Abidine Ben Ali was forced to flee the country, and as Fund Strategy went to press it was unclear how much influence his followers would retain in government.
Many fund groups with expertise in emerging markets were unavailable for comment, including Barings, BlackRock, Concord Investment, Investec, Polar Capital, Sarasin, Schroders and Silkinvest.
Protestors’ anger appeared to be focused on the the countries’ long-ruling and elderly leaders. Tunisia’s Ben Ali is 74. President Hosni Mubarak of Egypt is 82, while President Ali Abdullah Saleh of Yemen, although a mere 64, has ruled for 32 years. Such rulers, who typically share power with close family members, are widely perceived as corrupt within their countries. (article continues below)
Claire Spencer, the head of the Middle East and North Africa Programme at Chatham House, home of the Royal Institute of International Affairs, is concerned about the immediate problem facing Egypt. “This is a copycat movement, whereby the events in Tunisia have inspired a younger generation to revolt against authority,” she says.
“Even though telephone lines have been disrupted, and a shutdown of social networking websites such as Facebook and Twitter has been imposed, they have managed to organise hundreds of thousands of people into protest regardless.”
Spencer warns that one consequence of the unrest could be higher inflation, with protesters demanding higher wages.
However, Marc Lynch, the director of the Institute for Middle East Studies, is more optimistic about the Egyptian authorities’ ability to contain unrest. Writing on the Foreign Policy website, he says: “Unlike tightly-controlled Tunisia, states such as Egypt and Jordan have been grappling with protest movements for going on a decade now and have an all too rich experience with how to repress, divide and defeat the new [ones].”