The unrest in Egypt and its dramatic impact on world markets has once again given investors a rude reminder that not everything goes according to plan, or what economists, market analysts or cheer squads say will happen.
Gold, the US dollar and oil rose on Friday as protests rose in Egypt, which sent markets lower, in some cases by the largest amount in three months.
Just as the GFC undermined the certainty of the low interest rate regime, so the growing unrest, first in Tunisia and now in Egypt should remind investors that emerging markets are risky places to invest, despite all the talk about how economic growth and development would do wonders for those economies and their people.
In fact the unrest in North Africa is a very timely reminder that trouble in some countries could have a domino effect with unforeseen consequences, especially if it adds to pressures elsewhere in the region or the markets.
Too many investors have been worrying about China as it battles to control inflation and high house prices.
All the market soothsayers and gurus have missed the rising level of unrest in North Africa starting in Tunisia which last week spread to Egypt, the largest of all states in the Middle East.
While Egypt produces oil and lots of gas, its strategic significance is the ownership of the Suez Canal.
Overall, Egypt is a symbolic economy and country in the region, a friend of the US and the West, but ruled by an autocratic Hosni Murbarak who has been in power for decades.
With Lebanon hit by internal strife, Iran on the defensive, Turkey growing more assertive and Islamic, and Palestine still split, the potential for a sudden worsening in tension in the region (and a rise in oil and gold prices) can’t be ruled out.
There have already been marches by young people in Jordan, protesting about various years.
Watch for immolations (as happened in Tunisia and Egypt) by lone protestors to trigger an upsurge in unrest, anywhere in the region.
The bloody and confusing protests in Egypt saw markets the MSCI World All-Country World Index of stocks in 45 countries lost 1.4% on Friday.
Fund managers, who in recent months had been pushing more money into riskier assets, dumped stocks and piled into safe-haven investments like US government bond, the dollar and gold as the non-stop media coverage of skirmishes between protesters and Egyptian police overwhelmed all other news.
Protesters clashed with police across the country during the day and into the night, defying a curfew and setting fire to buildings.
President Mubarak imposed the curfew after tens of thousands of marchers chanted “liberty” and “change".
He is refusing to resign.
Reuters and other newsagencies put the death toll at 73, with more than 2,000 injured in the days of protests last week.
Protestors set fire to the ruling party’s head office in Cairo Friday.
And there were more protests yesterday and on Saturday.
Fitch Ratings on Friday put a “negative” outlook on Egypt, as protesters there escalated and continued.
That was after Standard & Poor’s warned that the upheaval in Tunisia, where mass protests drove the longtime president from office, risked creating “downward ratings pressures” on other governments in the region, if leaders tried to calm social unrest with “populist” spending on tax cuts, subsidies and public sector jobs.
After Wall Street closed Friday, President Mubarak said he asked the government to resign.
The demonstrations overshadowed a solid first estimate of US fourth quarter economic growth and slammed markets, especially in the US.
More uncertainty lies ahead, perhaps for months as the political situation sorts itself out.
