Could the collapse of several authoritarian regimes within the space of a month in the Mediterranean Arab world soon have a domino effect on bigger countries, with major consequences for the global economy? Is the wave of economic growth in emerging countries about to break against inflation? In February, the combination of these two concerns accelerated the sale of emerging market equities, for an estimated amount of about $20 billion, in particular causing Asian markets (excluding Japan) to lose nearly 5% over the month in euro; in contrast, the Euro Stoxx index gained almost 2% as the banking sector rallied. Although as early as January we highlighted the short-term vulnerability to inflation of certain emerging markets such as India and Indonesia, we could have been more tactically responsive in our global management. Point noted. We underestimated the extent of the reaction on the market, which views higher oil prices as another reason to avoid emerging countries, the traditional focus of investors' anxiety. All the more reason to carefully reconsider whether the scale of this market behaviour is justified and whether or not we need to change our long-term convictions and our analysis of the major risks.

It would be presumptuous to predict where the domino rally will end or what full consequences it ill have. Nevertheless, we feel that we can make a few valid points about our kind of global asset management. The series of revolts that have shaken the Arab world in recent weeks have been the work of young populations who are suffering a high unemployment rate, are well connected through the blogosphere and want to see the back of a few old autocrats hanging on to decades of absolute power with no ideology other than a personal dictatorship protected by a privileged army. When unacceptable images of State violence spread on social networks, anger finally overcame fear and regimes that were already crumbling started to collapse, with the army refusing to turn against its people. As we see it, these are predominantly national events (there are not many red or green flags flying on the horizon), without any charismatic leaders at this stage; they are not driven by a rejection of Western countries. Now rushing to provide help, however late, the West is actually on the insurgents' side. This situation is quite different from those of the 1950s and 1970s and does

not suggest any geopolitical risk of clashes on a similar scale that would justify expectations of a major oil crisis or undermine our forecast of a general reduction in the equity market risk premium. However, nobody knows what the new regimes will be like, nor what turmoil will have to be overcome before stability can be achieved. This new period of uncertainty calls for prudence, justifying the slight reduction in our equity exposure, which was down to 38% for Carmignac Patrimoine at the end of the month. Thinking of the domino effect, over the coming months all eyes will be on Gulf states and especially Saudi Arabia, which is naturally a vital link in the global oil supply. Will these countries' governments have the foresight to prevent a slide into chaos, seizing the opportunity they now have to convert the air of revolt blowing over the region into a sufficiently strong wind of political and economic reform? The $37 billion of salary increases and financial support promptly announced by King Abdullah is just the beginning, but is nonetheless a reminder that, in such a situation, financial leeway is most certainly worth having; it also suggests that the risk of contagion to these countries has been understood. The scent of jasmine does not appear to be filling the streets of Riyadh just yet. The rise in oil prices in recent weeks has not been a bolt from the blue. It is part of a firm trend towards higher commodity and in particular energy prices, largely due to a supply-side problem as demand grows relentlessly. Our portfolios have long been positioned with this in mind. Given that the distinctive feature of any authoritarian regime is to appear very stable until the moment it is overthrown, we are remaining particularly alert to the situation in the Gulf. To this end, our dollar and gold mining positions are precious insurance policies.