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A triple test for investing in emerging markets

The Globe and Mail

Emerging markets are popular these days, but how safe are these far-flung investments?

The Egyptian and Tunisian revolts prove that you can’t assess the risk of emerging markets simply by looking at economic data. Even Israel’s famed intelligence service failed to predict the recent uprisings in its own backyard, just as the CIA did not foresee the collapse of East Germany in 1989.

Or rather, one person did foresee the latter. Vernon Walters, then-U.S. ambassador to West Germany, had just returned from East Germany where he talked to people on the street, and quickly cabled James Baker, then Secretary of State, to report that the communist state would erupt. Mr. Walters was scorned, but he was right – the Berlin Wall fell in a week.