Although the spotlight has been mainly on the UK following the recent referendum in favor of leaving the EU, many investors have overlooked the global impact. Where certain Countries may be hit by the decision, others may even prosper. Emerging markets have showed to be calm during this time of uncertainty, perhaps due to the fact that these markets are accustomed to instances of changing governments, potential corruption and a regulatory greenfield. Investors who wish to enter these territories pay for taking these risks amongst themselves. So far emerging markets seem to be preforming well and Investors could potentially benefit from the recent asymmetry of political risk between emerging and developing markets.
But emerging-market investors are used to discounting the failings of institutions, whether related to corruption, lack of independence for the judiciary, concerns over property rights and so on. These are more fundamental failings, but investors get paid for taking that risk: the yield on the EMBI is 4 percentage points above that on Treasurys. Moreover, if such problems are addressed, then political risk can actually diminish: there is an upside.