Global Investing

Risk spills over in Middle East

August 10, 2012

There’s little or nothing to put your money into in Iran or Syria, and countries like Egypt and Tunisia are struggling to win investors back after their Arab Spring uprisings last year. But geopolitical risk is also seeping into other countries in the Middle East.

Lebanon is looking a tricky bet, as the country has seen clashes between supporters and opponents of the uprising against Syrian President Bashar al-Assad and the border region has been used by rebels to smuggle arms into Syria and take refuge from Syrian troops.

Farouk Soussa, Middle East economist at Citi in Dubai, says:

Syria is having a very big impact on people’s perceptions of risk in Lebanon. There is an increasing risk that if we do have regime change in Syria, it could mean change in Lebanon.

Yields on Lebanese debt, which appears in flagship bond indices tracked by many investors, have hit their highest in more than a year, at a time when most emerging market debt has rallied.

Meanwhile, Aberdeen Asset Management Israel fund manager Susan McDonald says she is underweight Israeli industrial companies, in part because of rising gas prices after Egypt in April terminated its agreement to supply gas to Israel.

The 20-year deal was signed in the era of toppled President Hosni Mubarak and ties between the two countries have been strained since his February 2011 overthrow in a popular revolt.

McDonald says:

The changes that have come about as a result of the unrest in the region have had an impact on Israel, a good example is in energy security. Until Israel can develop its gas reserves, there are going to be shortages.”

For Israel and other countries in the region, there is also the risk of a strike by Israel on Iran’s nuclear facilities. While most analysts see that as unlikely, the country’s prime minister and defence minister would like to attack before November U.S. presidential elections, Israel’s biggest-selling daily said today.

 

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