London Daily

Focus on the big picture.
Wednesday, May 13, 2026

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.

Newsletter

Related Articles

0:00
0:00
Close
The Great Western Exit: Why Best Citizens Are Fleeing the Rich World [PODCAST]
The New Robber Barons of Intelligence: Are AI Bosses More Powerful Than Rockefeller?
The End of the Old Order [Podcast]
Britain’s Democracy Is Now a Costume
The AI Gold Rush Is Coming for America’s Last Open Spaces [Podcast]
The Pentagon’s AI Squeeze: Eight Tech Giants Get In, Anthropic Gets Shut Out [Podcast]
The War Map: Professor Jiang’s Dark Theory of Iran, Trump, China, Russia, Israel, and the Coming Global Shock [Podcast]
Labour Is No Longer a National Party [Podcast]
AI Isn’t Stealing Your Job. It’s Dismantling It Piece by Piece.
Lawyers vs Engineers: Why China Builds While America Litigates [Podcast]
Churchill’s Glass: The Drunk, the Doctor, and the Myth Britain Refuses to Sober Up From
Apple issues an unusual warning: this is how your iPhone can be hacked without you doing anything
Kennedy’s Quiet War on Antidepressants Sparks Alarm Across America’s Medical Establishment
The Met Gala Meets the Age of Billionaire Backlash
Russian Oligarch’s Superyacht Crosses Hormuz via Iran-Controlled Route
Gunfire Disrupts White House Correspondents’ Dinner as Trump Is Evacuated
A Leak, a King, and a Fracturing Alliance
Inside the Gates Foundation Turmoil: Layoffs, Scrutiny, and the Cost of Reputational Risk
UK Biobank Breach Exposes Health Data of 500,000, Listed for Sale on Chinese Platform
KPMG Cuts Around 10% of US Audit Partners After Failed Exit Push
French Police Probe Suspected Weather-Data Tampering After Unusual Polymarket Bets on Paris Temperatures
CATL Unveils Revolutionary EV Battery Tech: 1000 km Range and 7-Minute Charging Ahead of Beijing Auto Show
Crypto Scammers Capitalize on Maritime Chaos Near the Strait of Hormuz: A Rising Threat to Shipping Companies
Changi Airport: How Singapore Engineered the World’s Most Efficient Travel Experience
Power Dynamics: Apple’s Leadership Shakeup, Geopolitical Risks in the Strait of Hormuz, and Europe's Energy Strategy Amidst Global Challenges
Apple's Leadership Transition: Can New CEO John Ternus Navigate AI Challenges and Geopolitical Pressures?
Italy’s €100K Tax Gambit: Europe’s Soft Power Tax Haven
News Roundup
Microsoft lost 2.5 millions users (French government) to Linux
Privacy Problems in Microsoft Windows OS
News roundup
Péter András Magyar and the Strategic Reset of Hungary
Hungary After the Landslide — A Strategic Reset in Europe
Meghan Markle Plans Exclusive Women-Focused Retreat During Australia Visit
Starmer and Trump Hold Strategic Talks on Securing Strait of Hormuz Amid Rising Tensions
Unofficial Australia Visit by Prince Harry and Meghan Expected to Stir Tensions with Royal Circles
Pipeline Attack Cuts Significant Share of Saudi Arabia’s Oil Export Capacity
UK Stocks Rise on Ceasefire Momentum and Renewed Focus on Diplomacy
UK to Hold Further Strategic Talks on Strait of Hormuz Security
Starmer Voices Frustration as Global Tensions Drive Up UK Energy Costs
UK Students Voice Concern Over Proposal for Automatic Military Draft Registration
Rising Volatility Drives Uncertainty in UK Fuel and Petrol Prices
UK Moves to Deploy ‘Skyhammer’ Anti-Drone System to Strengthen Airspace Defense
New Analysis Explores UK Budget Mechanics in ‘Behind the Blue’ Feature
Man Arrested After Four Die in Channel Crossing Tragedy
UK Tightens Immigration Framework with New Sponsor Rules and Fee Increases
UK Foreign Secretary Highlights Impact of Intensified Strikes in Lebanon
UK Urges Inclusion of Lebanon in US-Iran Ceasefire Framework
UK Stocks Ease as Ceasefire Doubts in Middle East Weigh on Investor Confidence
UK Reassesses Cloud Strategy Amid Criticism Over Limited Support Measures
×