Strategists advise caution

Developments in Egypt have calmed markets, but analysts warn investors that there's "plenty of scope" for further turmoil across the Middle East and northern Africa. Among new developments today, according to Reuters:

• Authorities used teargas to disperse opposition supporters at a rally in Tehran, sparking clashes and dozens of arrests.
• Police in Bahrain also used teargas and rubber bullets to break up protests around the capital.
• Government supporters went after protesters who clashed yesterday with police in Yemen.

"Following Friday's events, there is a sense among many that geopolitical noise will diminish significantly moving forward," said Nick Chamie at RBC Dominion Securities. "Keep in mind there is plenty of scope for further unrest in Egypt and elsewhere in coming days/weeks."

Noting that protests were intensifying in Algeria, Jordan, Yemen, Iran and Bahrain, Mr. Chamie added that Saudi Arabia is also worried that the Shiite population will also rise up in the eastern area of the country where much of its oil wealth is concentrated.

"Continue monitoring events in the region as there remains plenty of opportunity for event risk to materialize," he advised. "While the likelihood of an intensification of pressure in Jordan, Yemen, Algeria and Bahrain looks greatest, by far and away the two countries with the greatest geopolitical and oil market importance - Saudi Arabia and Iran - are likely to clamp down severely on any effort to organize public protests to maintain their grip on power."

Analysts at UBS AG were similarly cautious.

"While we continue to expect the transitional process in Egypt to be messy, with potential ripple effects in the region and for global markets, we are not changing our overall positive view on risk assets or emerging markets at this juncture," said strategists Katherine Klengensmith, Michael Ray and Jürg de Spindler.

"Mubarak’s resignation has removed some uncertainty from the situation, and while there is a risk of further political and economic disintegration within the country, we do not expect as much, and do not see it as likely to have broad implications on the region. However, we would recommend waiting to add positions in emerging markets, until greater clarity emerges regarding the scope of political changes affecting the Middle East."