Political turmoil rocks frontiers

Frontier markets have been gripped by political upheaval in recent weeks. In the largest frontier economy, Saudi Arabia, Crown Prince Mohammed bin Salman (known as MbS) has overseen a high-profile anti-corruption crackdown. Tackling corruption is clearly welcome and the crown prince’s consolidation of power has raised hopes that he will be able to push through his Vision 2030 economic reforms. But we think there is a significant risk of a backlash that undermines MbS and threatens to derail Vision 2030. At the same time, a ratcheting up of tensions with Iran and threatens to morph into a new proxy war in the region, with Lebanon likely to be the centre ground. All of this has thrust the spotlight back on to the region’s dollar pegs. A devaluation in Lebanon is not out of the question, but we think currency pegs in the Gulf should weather the turmoil well. Elsewhere, Zimbabwe’s President Mugabe stepped down after 37 years in power following a military takeover. Emmerson Mnangagwa has been sworn in as Mr. Mugabe’s successor and there are hopes in some quarters that he will oversee a turnaround in Zimbabwe’s economy which, due to many years of poor policymaking, is a shadow of its former self. Tackling excessively loose fiscal policy and a fresh overhaul of the country’s exchange rate regime would be good first steps. Worryingly, though, Mr. Mnangagwa made little mention of these in his inauguration speech.