As conflict continues in Arab nations, Simon Sole from Exclusive Analysis, explains how political risk needs to factored into investment strategies by both hedge fund managers and investors.

The awakening of democratic movements throughout the Arab world is an exciting time for these nations, declares Simon Sole, CEO of Exclusive Analysis, a specialist intelligence company that forecasts commercially relevant political and violent risks. "I have yet to meet anyone who is not very excited by this. It doesn't matter where they live."

He believes all the nations will be faced with populations demanding reform. "Syria or Saudi, you're very excited by the idea of political reform and freedom," he notes.

This awakening, however, will have a different impact in every environment, making a single analysis of the region impossible. For example, Sole believes Jordan will "probably be a big contest and quite a lot of bloodshed but Jordan will probably end up where it started with the king in place".

He says Bahrain is seen by many as the lynchpin of the region, particularly as the Saudis and the Gulf Co-operation Council (GCC) states believe Bahrain is the "test case and they can't let it go down".

Sole also believes Saudi Arabia will not be immune to the political unrest spreading throughout the region. "You will see regional uprisings by some Sunni and lots of Shia. And you also have a succession to get through in the next few years," he notes.

Looking to the future he advises hedge funds that control risk by having country limits may be misguided. "Time and time again, whether it is global political risk contagion as here [in the Middle East] or banking risk contagion in the Eurasian area, country limits are a necessary starting point for risk control but not the end point. Investors and strategists must have global cross-country scenarios that they must test their risk strategies against. Then and only then will they have appropriate risk controls in place," concludes Sole.