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.