The election of Donald Trump has caused a short-term correction in emerging market assets and threatens a long-term rise in risk across the Middle East.
In the two days since the election result was called, the MSCI Emerging Markets index has lost roughly half what it gained in six months of steady growth.
“Yesterday’s correction was not expected in this magnitude and is a great frustration,” said Heinz Rüttimann, a research analyst at Swiss private bank Julius Baer.
On a longer term view, Trump’s presidency could destabilise the Middle East region. American support for Iraq is likely to weaken, potentially inflaming regional tensions, says a report by specialist emerging markets investment firm Exotix Partners.
“Following the Trump victory, the introduction of unpredictability in US foreign policy
likely increases already elevated risk premia in the Middle East,” reads the report.
Saudi Arabia and the other Gulf states will increase their spending on defence and security in anticipation of regional conflict, predicts the firm.
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