If EM investors were looking for a trigger for volatility, this must surely fit the bill. The downing of flight MH17, whoever is found to be responsible, appears certain to cause an escalation of geopolitical tensions already at a high level over Gaza, Iraq, Syria and Ukraine itself. Investors, whose attention has been focussed almost exclusively on the US Federal Reserve and the prospect of rising interest rates, must surely now put more political risk into their calculations.
But look at the reaction on markets and you have to conclude: not a bit of it.
Africa is looking increasingly risky for investors and global supply chains. Or at least, that’s the judgement of the latest Global Risks and Resilience Atlas published on Thursday by Maplecroft.
Worldwide, 21 countries saw an increase in their exposure to risks, of which 15 are African, including: Mali, Mozambique, Tanzania, Senegal, Madagascar, Burkina Faso and Eritrea.
Nigeria looks set to become Africa’s biggest economy in the medium term, and with its large population and growing consumer spending power, the west African country is top of the list for many investors looking to tap African growth. But 2014 will ask searching questions about the country’s political climate.
An Egyptian proverb says, “when the merchant goes bust, he starts searching through his old books,” in the hope, of course, of finding a debt or two that he can call in. To many Egyptians, their government is acting like the proverbial merchant as it aggressively pursues, over a tax claim suddenly conjured out of history, two of the country’s biggest businessmen, Nassef Sawiris (pictured), chairman of Orascom Construction Industries, and his father, Onsi Sawiris, former chairman.
If successful, the government could net a few much-needed billions. But to many critics, the action against OCI could seriously damage the prospects of restoring investor confidence in the country.
Inflation is on the rise in the Middle East and north Africa, bringing risks to consumption-driven growth and adding to political strains in the transitional countries least able to cope with them.
Africa may host some of the world’s fastest-growing economies, but it also still suffers from coups, riots and messy elections, which can bring business to a sudden halt. Kenya’s general election in 2007 wreaked economic havoc. It will hold another in March – but this time around, political risk insurance is providing a modicum of security for foreign investors and locals alike.
With the US wobbling atop its fiscal cliff, the European Union struggling to control the eurozone crisis and Japan seemingly sunk into permanent stagnation, it would be easy to conclude that the biggest global risks of 2013 come from the developed world.
Not so, says Eurasia, the political risk consultancy. In its predictions for 2013, the group puts emerging markets at the top of the risk rankings. That’s because the advanced economies have proved in recent years that they can manage crises. Emerging markets will struggle to cope with the world’s growing political pressures.
Brazil, Russia, India and China. What do they have in common? Political risk and, consequently, discounted stock prices, says Phil Langham, portfilio manager for emerging markets at RBC Global Asset Management in London.
Brazil has been a concern for some time. “There seems to be a constant dribble of policy changes which narrows visibility,” he says. “Brazilian stocks are seeing an increase in their risk premium.”
If 2011 was the year of the (unpredicted) protest, what does 2012 have in store? More protests, quite possibly. But one growing trend to look out for is that of “resource nationalism” – efforts made by natural-resource rich countries to secure greater rewards from those assets.
This is one of the key findings of Maplecroft, a risk advisory company, in its Political Risk Atlas for 2012. It makes sobering reading.