Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

Burst of social unrest tests emerging market risk models

Burst of social unrest tests emerging market risk models

A wave of social unrest across developing countries this year has caught many investors off-guard and is challenging models designed to gauge political risk for investors, prompting some to pull money out.

That has led to worries that a withdrawal of billions of dollars of portfolio investment might itself exacerbate domestic economic ills and fuel even more anger on the street as foreign money vital for economic and jobs growth dries up.

Anti-government demonstrations in Hong Kong, Chile, Bolivia, Lebanon and elsewhere in recent months have proved as intense and durable as they were sudden and surprising.

The sharp market reaction has forced even seasoned money managers who pride themselves on an ability to navigate political risks often inherent in emerging markets to rethink.

Many work with in-house or external risk analysts to monitor everything from changes in taxation to social media to gauge the threat of civil strife, rebellion or even war.

The unrest confirmed that traditional risk measures like a sovereign’s willingness to pay its debts, or political stability, do not always fully capture the early signs of disorder and is hastening greater interest in broader indicators. Those might include internet freedom, and even the gender balance in school classrooms.

“It’s really about thinking where the next bit of unrest could occur and trying to preempt that,” said Richard House, CIO emerging market debt, Allianz Global Investors, which has 535 billion euros of assets under management. “Any whiff of unrest in these markets and that has a big impact on asset prices.”

Some asset prices have seen sharp collapses. Lebanon’s bonds trade at less than half their face value, Hong Kong stocks have tumbled around 13% since April and Chile’s peso hit record lows.

Popular discontent in Chile, which has enjoyed consistent economic growth and rising prosperity for years, came as a particular surprise. Indicators designed to flag such a possibility were found wanting when riots erupted in October.

With solid investment-grade credit ratings, Chile was ranked 18th out of 60 countries in BlackRock’s Sovereign Risk Index, which measures factors like debt levels and financial sector strength.

“We of course went immediately ‘what was our AI telling us about?’, and especially as this was a very solid country where institutions are very strong,” said Sergio Trigo Paz, head of emerging markets fixed income at BlackRock, the world’s largest asset manager.

Chile was an exception to the recent pattern of unrest, which tends to happen in the “fragile middle” nations which are semi-autocracies or weak democracies, said James Lockhart Smith, head of financial sector risk at Verisk Maplecroft.

Pembroke Emerging Markets trimmed its investments in Chile this month, having previously taken short positions on retailers there in expectation that consumer spending might suffer due to lower prices of copper, its main export.

“One of the things we’ve learned is that things change rapidly and when visibility becomes low it’s better to take smaller positions,” said Pembroke CIO Sanjiv Bhatia.

Particularly since protests flared, Pembroke regularly reviews the country risk analysis part of the criteria it uses to determine investment decisions, he said.


COMMON THREADS

Investors are seeking common threads between the protests, such as wealth disparity, unemployment and lack of political voice, to help identify countries that may be vulnerable to similar instability.

“Most Middle East countries have very young populations, high income inequality, so we’re avoiding places like Jordan and Oman which have similar demographics to places like Lebanon and Iraq,” said Allianz’s House.

Allianz cut its exposure to Colombia before recent strikes there began.

BNP Paribas Asset Management, with 436 billion euros (374.6 billion pounds) in assets under management, was already mostly out of Bolivia and Venezuela before events escalated thanks to its own assessment matrix, said Bryan Carter, head of emerging market fixed income.

“Can we imagine military dictatorships coming back in Latin America or going back to the 80s and the 90s? That is completely unimaginable in a country like Chile, no way. But in Bolivia, I don’t know if I would say that so quickly,” he said.

It is not clear yet if the unrest has sparked a broad retrenchment. Chile saw equity outflows of $24.2 million in October but a partial rebound in the month to Nov. 22.

Emerging market equity funds lost $3.2 billion in October when protests erupted in Ecuador, Bolivia and Lebanon, but nearly half has since returned. Bond funds added $3.7 billion in October, then lost $326.1 billion in November.

The unrest has raised scrutiny of countries with high levels of violence, discrimination against women, corruption or weak rule of law, which have been among protesters’ concerns.

“It reinforces the premise that country selection matters, nowhere more than in EMs, where freedom levels vary so widely between countries,” said Perth Tolle, founder of Life + Liberty Indexes, a freedom-weighted emerging market equity strategy.

Tolle cited clients considering cutting China exposure, in part because of Beijing’s response to the Hong Kong protests.

AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
Woman Receives Gift Card for Christmas – Discovers It Is ‘Worth’ 63,000,000,000,000,000 Pounds
United Nations Calls for Global Action Against Disinformation and Hate Speech Online
Tucker Carlson warns of an inevitable clash in Western societies over mass migration
OpenAI CEO Sam Altman praises the rapid progress of Chinese tech companies.
Poland's President Karol Nawrocki ENDS support for Ukrainian citizens:
Italy's PM Giorgia Meloni highlights record employment and economic growth
Chancellor Friedrich Merz Re-elected as CDU Leader, Opposes AfD Influence
Trump Directs Government to Release UFO and Alien Information
Trump Signs Global 10% Tariffs on Imports
UK Government Considers Law to Remove Prince Andrew from Royal Line of Succession
Two teens arrested in France for alleged terror plot.
US Supreme Court Voids Trump’s Emergency Tariff Plan, Reshaping Trade Power and Fiscal Risk
Greek Prime Minister Kyriakos Mitsotakis advocates for a ban on minors using social media.
Meanwhile in Time Square, NYC One of the most famous landmarks
Jensen Huang just told the story of how Elon Musk became NVIDIA’s very first customer for their powerful AI supercomputer
Former British Prince Andrew Arrested on Suspicion of Misconduct in Public Office
Former President Yoon Suk Yeol Sentenced to Life in Prison for Abuse of Authority
Unitree Robotics founder Wang Xingxing showcases future robot deployment during Spring Festival Gala.
German Chancellor Friedrich Merz calls for real name use on social media.
Italian Police Arrest Man After Alleged Attempt to Abduct Toddler at Bergamo Supermarket, Child Hospitalised With Fractured Femur
British Tourist Arrested at Hong Kong Airport After Meltdown and Vandalism
European Commission Plans Purchase Incentives Limited to Vehicles Manufactured Largely in the EU
French District of Pas-de-Calais Introduces Immediate License Suspension for Drivers Using Mobile Phones
Volkswagen Targets €60 Billion in Cost Reductions as Sales Decline and Global Pressures Intensify
Eighty-Year-Old Lottery Winner Sentenced to 16.5 Years for Drug Trafficking
Rubio Calls for Sweeping U.N. Reform, Saying It Has Failed to End Wars in Gaza and Ukraine
10,000 Condoms Distributed at Winter Olympics 2026 Athlete Village Depleted Within 72 Hours
Poland's President Advocates for Evaluating Independent Nuclear Weapons Development
Mayor of Serdobsk in Russia’s Penza Region Resigns After Housing Certificates Granted to Migrant Family Trigger Public Outcry
China’s EV Makers Face Mandatory Return to Physical Buttons and Door Handles in Driver-Distraction Safety Overhaul
UK Green Party Considering Proposal to Legalize Heroin for an Inclusive Society
OpenAI and DeepCent Superintelligence Race: Artificial General Intelligence and AI Agents as a National Security Arms Race
We will protect them from the digital Wild West.’ Another country will ban social media for under-16s
Heineken announces cut of 6,000 jobs due to declining beer demand
Apple iPhone Lockdown Mode blocks FBI data access in journalist device seizure
Belgium: Man Charged with Rape After Faking Payment to Sex Worker
KPMG Urges Auditor to Relay AI Cost Savings
Canada Opens First Consulate in Greenland Amid Rising Geopolitical Tensions
China unveils plans for a 'Death Star' capable of launching missile strikes from space
Investigation Launched at Winter Olympics Over Ski Jumpers Injecting Hyaluronic Acid
U.S. State Department Issues Urgent Travel Warning for Citizens to Leave Iran Immediately
Wall Street Erases All Gains of 2026; Bitcoin Plummets 14% to $63,000
Eighty-one-year-old man in the United States fatally shoots Uber driver after scam threat
Political Censorship: French Prosecutors Raid Musk’s X Offices in Paris
AI Invented “Hot Springs” — Tourists Arrived and Were Shocked
France Begins Phasing Out Zoom and Microsoft Teams to Advance Digital Sovereignty
Tech Market Shifts and AI Investment Surge Drive Global Innovation and Layoffs
Global Shifts in War, Trade, Energy and Security Mark Major International Developments
Markets Jolt as AI Spending, US Policy Shifts, and Global Security Moves Drive New Volatility
Tesla Ends Model S and X Production and Sends $2 Billion to xAI as 2025 Revenue Declines
×