This archive report was first published on 2 December 2019.
Investors are rethinking their approach to emerging markets after a wave of social unrest across developing countries this year.
Anti-government demonstrations in Hong Kong, Chile, Bolivia, Lebanon, and elsewhere have proved intense and durable, forcing even seasoned money managers to rethink their strategies.
Traditional risk measures, such as a sovereign's willingness to pay its debts or political stability, do not always capture the early signs of disorder, according to Richard House, CIO of emerging market debt at Allianz Global Investors.
“It's really about thinking where the next bit of unrest could occur and trying to preempt that,” House said.
Some asset prices have seen sharp collapses, with Lebanon's bonds trading at less than half their face value, Hong Kong stocks tumbling around 13% since April, and Chile's peso hitting record lows.
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,” House said.
BNP Paribas Asset Management, with 436 billion euros in assets under management, was already mostly out of Bolivia and Venezuela before events escalated, according to 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,” Carter said.
