Time to Be Concerned About Emerging Markets Stocks?

The situation in Egypt is the center of attention for the investment world right now.

As usual, one of favorite columnists has an interesting perspective. Here's Ambrose Evans-Pritchard in yesterday's London Telegraph:

The surge in global food prices since the summer – since Ben Bernanke signalled a fresh dollar blitz, as it happens – is not the underlying cause of Arab revolt, any more than bad harvests in 1788 were the cause of the French Revolution.

Yet they are the trigger, and have set off a vicious circle. Vulnerable governments are scrambling to lock up world supplies of grain while they can. Algeria bought 800,000 tonnes of wheat last week, and Indonesia has ordered 800,000 tonnes of rice, both greatly exceeding their normal pace of purchases. Saudi Arabia, Libya, and Bangladesh, are trying to secure extra grain supplies.

Egypt and Tunisia usher in the new era of global food revolutions - Telegraph

Mr. Ambrose-Pritchard goes on to describe the challenges that confront leaders around the world in feeding their people. He notes that there is probably enough capacity to raise sufficient foodstuffs, but it will take strong global leadership.

From an investment standpoint, I think you have to be at least cautious on the emerging markets at this point. True, Egypt and Tunisia are not exactly world stock market leaders but they are symptomatic of a trend that could ruin the current global love-in with equities.

As has been written in many places, the growing wealth gap between most of the world's populace and the relatively few that have enjoyed the benefits of globalization could eventually turn out badly, in my opinion.

It is all well and good to look at macroeconomic data from places like China and Brazil and be bullish on business prospects in those countries. However, an unsettled populace can easily scare foreign capital, and reverse the upward trends in prices.