Political turmoil haunts emerging market investors

With just weeks to go until key presidential votes, markets in Colombia and Peru are selling off as traders recalculate odds of left-wing candidates prevailing. Bolivian bonds have tumbled as street protests against the government threaten supplies of food and medicine to the nation’s capital. In Turkey, markets tanked after a court removed the leader of the country’s main opposition party.

The episodes are a fresh reminder of underlying risks that still plague the asset class, which has delivered strong returns for investors in the past year – even as tensions in the Middle East rattled global markets.

“Political risk manifests itself when the macro is under pressure, and in an environment where all the prices are going up, especially in oil-importing economies and poor countries the issues flare up, they come to the fore more vividly,” said Francesc Balcells, chief investment officer at FIM Partners, whose firm oversees $5 billion.

The political jitters are not contained to Latin America. In Malaysia too, markets were briefly roiled after Prime Minister Anwar Ibrahim raised the prospect of a snap election as friction with the ruling coalition deepened.

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