Fisher Investments Editorial Staff
Geopolitics, Investor Sentiment, Market Risks, Media Hype/Myths

Egyptian Unrest

By, 02/01/2011

Story Highlights:

  • Protestors continued to riot in Egypt over the weekend, and investors globally worried about the effects on stocks.
  • One country's troubles don't necessarily mean trouble for the rest of the world—and most economic data continue to be positive, especially in the US. 
  • Determining the outcome of the unrest in Egypt will be difficult if not impossible, but possible effects on the global economy or stock markets are likely short term.

It was a tense weekend in Egypt as protestors continued rioting for greater democracy in government. As foreign visitors scrambled to evacuate, investors worried what effects the civil unrest may have on global stocks. However, as we've said before (most recently during the Korean peninsula tensions), regional or country-specific problems don't necessarily mean trouble for the rest of the globe. And while markets slipped Friday, likely partly due to news from Egypt, they rebounded strongly Monday on overall more positive trends, particularly in the US.

US consumer spending, for example, rose at the fastest pace in three years—great news, especially since so many had predicted the "death of consumers" not too long ago. Meanwhile, US business also shared some good news—Chicago's Institute of Supply management reported businesses logged the fastest expansion since July 1998. And it's not just the US—other parts of the world show positive data, too. Russia reported 4% GDP growth for 2010. Other Emerging Markets like China and Taiwan reported gangbusters growth above 10% last year. And Germany, Europe's largest economy, wasn't much bothered by the PIIGS—it grew at the fastest rate since the Berlin Wall fell.

It'll be difficult to determine the outcome, political or economic, of the upheaval in Egypt—especially since communication with the outside world has been encumbered by the government's internet blockade. Could the unrest become more problematic? Yes—particularly if it spreads broadly and affects oil supply in a meaningful and immediate way. But historically in the Middle East, there's nearly always some form of geopolitical tension. There have been notable instances of oil supply disruption, like the 1967 oil embargo that began during the Six-Day War and ended three months later. The 1970s oil crises were mostly disasters of diplomacy, not ongoing hot wars. The 1980s, 1990s, and 2000s held unrest aplenty in the Middle East, and even outright conflict, but oil supply disruptions tied to unrest have typically been short-lived, and they didn't reverberate lastingly throughout the global economy or capital markets.

The Suez Canal seems to be on the minds of many considering recent news. But an important point is the Suez Canal and its related pipeline account for about 2.7 million barrels per day in oil shipments. The Strait of Hormuz accounts for about 15.5 million barrels per day. And the little-known Strait of Malacca accounts for 13.6 million, indicating that while the Suez isn't insignificant, it's not the biggest waypoint either.

Even so, Egypt's miniscule weighting (0.5%) in the MSCI Emerging Markets Index (much less against world stocks) shouldn't affect long-term investors' outlooks. While unrest in Egypt may cause continued short-term stock market volatility, remember—neither Egypt nor short-term volatility mean much in the long term. And in the end, it isn't the possibility of a larger problem investors should weigh, but the probability of spreading unrest more meaningfully impacting markets. Speculating the Egyptian scenario ends negatively and is broad enough to impact markets is just that—speculation.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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