Even before the recent food price crisis in many countries the rich were getting richer and the poor were getting poorer. The continued increase in the world population that will put upward pressure on commodity prices can only reinforce the risk of further political upheaval in some parts of the world. The global economy must work to more efficiently produce and supply food. Income inequalities must be arrested in order that social instability and sharp political change does not become the order of the day.

People are wrong to suggest that political upheaval as a result of the gap between rich and poor is a risk only for emerging countries. Fundamental imbalances between rich and poor exist even in the most developed of nations. In the United States the gap between rich and poor is growing ever wider, according to a study by the Economic Policy Institute (EPI) released recently. The gap is at its largest since the survey began in 1962. The richest one per cent of American households have 225 times as much money as the average household, it said. In the 1960’s the figure was 125. The financial crisis has only exacerbated the imbalance between rich and poor- in 2009 the richest 1% of Americans had an average wealth of $14million 27 per cent less than in 2007. The average US household over the same time frame saw a 41 per cent fall in their assets to $62,600, due to the fall in house prices. The share of the population of Americans below the poverty line has increased to 6.3 per cent of the population the highest level since records were kept in 1975.

The events in Egypt are likely to continue to dominate sentiment in the MENA financial markets. MENA equity funds may see near term pressure as international investors look to exit the markets. With the Egyptian equity market closed, fund managers are forced to sell markets where there are no problems in order to meet the redemptions of units from their funds. Gauging the downside risks to markets is difficult given the complexity of the Egyptian political situation. An early resolution to the situation would certainly enable the markets to recover their poise however damage has been done and investors will demand a greater risk premium from the Egyptian financial markets in the future. Egyptian long-term interest rates are likely to be higher and the equity market lower. There is more hope for the general MENA markets as long as the long-term prospects for the Egyptian economy are not substantially damaged. With a swift political resolution to the problems, MENA equity markets should rebound smartly given that recent performance had been fairly flat and the valuation of many of the markets very low by international standards. However should the problems drag on the markets will increasingly become worried that the economic interests of many regional companies with Egyptian businesses are being materially damaged.

Events in the markets this week only serve again to highlight the value of gold in a portfolio. For the week the gold price ended virtually unmoved trading at $1340, whilst other asset classes such as equities had a tougher time. Investors have also seen the oil price sharply. The fear is that the Egyptian crisis might hamper traffic through the Suez Canal. If oil tankers take the longer route avoiding the Suez Canal it would add 10 days to the journey of oil to the United States and 18 days to Northern Europe. Whilst the delay can be absorbed by a drawdown of stocks fear alone has been sufficient to drive the oil price higher. Commodities in general recovered most of their losses for the year. We continue to recommend that investors keep a good weighting of commodities in their portfolios for diversification benefits and capital returns.

The economic data continues to support a picture of good global growth with the dilemma of where inflation is headed. US economic data releases last week were in the main strong. The fourth quarter 2010 GDP growth report was ahead of expectations. Consumer confidence was reported stronger than expected. Even in the eurozone the latest set of industrial confidence surveys were ahead of market expectations. Only the UK economy sprang a major negative surprise with Q4 GDP growth showing a negative of -2 per cent due to the impact of the poor weather. On the inflation front Eurozone inflation was ahead of expectations and had the market worrying that the ECB would be forced to react by increasing interest rates at some stage in 2011.

Emirates NBD Private Banking launched its art advisory this week in partnership with the Fine Art Fund. The global art market continues to go from strength to strength. Christies the London-based auction house, announced last week that its sales had increased 53 per cent last year to $5.2 billion. This is a record for the company.

Given current volatility we would urge investors to be cautious in the way they invest in the local markets. We hope that the Egyptian situation calms and some normality can be brought back to the markets. The longer the crisis continues the more it will do damage to the long term outlook for the Egyptian economy. Many of the companies in the region have committed to investing in Egypt’s long-term future. Should that business opportunity diminish it may be drag on the medium term performance of the regional markets. We reiterate that investors should be diversified in their asset choices and committed to asset classes such as commodities and particularly gold.

The writer is a Chief Investment Officer (Private Banking) at Emirates NBD.