EM News: Political Unrest Threatens To Harm EM Portfolios


by Gordon Platt

Further political unrest in the Middle East and North Africa is highly likely and could have a major negative impact on investors’ portfolios, according to a BNY Mellon white paper released in June. Nevertheless, emerging markets offer the best prospects for investors, although there are concerns about overheating, the study says.

The white paper reports the results of a global survey of 800 institutional investors and corporate executives conducted recently by the Economist Intelligence Unit. Widespread social unrest caused by rising food and commodity prices, and a spike in oil prices to $150 a barrel are both considered as likely events, and each would be highly negative for investors.

Most respondents expect the global economy to improve over the next 12 months, but they say the pace of the recovery is likely to slow. In contrast to the “risk on, risk off” environment of 2010, asset selection is expected to be a crucial determinant of investors’ returns over the next 12 months.

Investments in companies in the developed world with strong exports to emerging markets may offer investors another attractive way to take advantage of growth opportunities in emerging markets, the white paper says. Commodities are regarded as offering positive prospects for asset-price growth, but they are also viewed as the asset class where bubbles are the most likely to form. Oil and gas, agriculture, mining and metals are industries that respondents think will offer the best growth rates.