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With just weeks to go until key presidential votes, markets in Colombia and Peru are selling off as recalculate odds of left-wing candidates prevailing. Bolivian bonds have tumbled as street protests against the government threaten supplies of food and medicine to the nation’s capital. In Turkey, markets tanked after a court removed the leader of the country’s main opposition party.

The episodes are a fresh reminder of underlying risks that still plague the asset class, which has delivered strong returns for investors in the past year — even as tensions in the Middle East rattled global markets.

“Political risk manifests itself when the macro is under pressure, and in an environment where all the prices are going up, especially in oil-importing economies and poor countries the issues flare up, they come to the fore more vividly,” said Francesc Balcells, chief investment officer at FIM Partners, whose firm oversees $5 billion. “I wouldn’t be surprised if we see more of that going forward.”

In Latin America, some of the best rallies in the developing world are fading as investors dial back exposure. The region’s markets had been on a roll this year, buffeted by a relative insulation from the war on Iran and by being home to countries that benefit from higher crude prices.

Hopes that market-friendly candidates would prevail in upcoming elections had also helped fuel gains. But in the lead up to the votes in Colombia and Peru, firms including PPM America, JPMorgan Asset Management and Allianz Global Investors say inconsistent polling and wild-card candidates have muddied the scenario. In Brazil, President Luiz Inacio Lula da Silva reclaimed the lead in voter intentions with his main rival ensnared in a corruption scandal.

“It’s difficult to read these outcomes with a very strong degree of certainty — that makes it very difficult to trade or position around,” said Alexander Robey, a portfolio manager at Allianz Global Investors. “So we don’t really have a strong directional view and I think anyone who says they do is probably overconfident.”

Local bonds from Colombia posted a 4.4% loss in the last month, the worst performance in the developing world, according to data compiled by Bloomberg. The yield on Peru’s 30-year local notes is hovering around the highest since August, while six-month implied volatility in Brazil’s real has jumped near the highest since late 2024. Dollar debt from Turkey and Bolivia led losses among developing world peers last week, the data show.

The political jitters are not contained to Latin America. In Malaysia too, markets were briefly roiled after Prime Minister Anwar Ibrahim raised the prospect of a snap general election as friction with the ruling coalition deepened.

But it was Turkey which offered perhaps the most stark reminder of just how fast political risk can re-emerge. On Thursday the Ankara appeals court annulled the results of the 2023 congress of the Republican People’s Party, hollowing out the political opposition. The decision sparked a rout that triggered a circuit breaker in stocks, sent dollar bonds plunging and prompted state lenders to heavily intervene in currency markets.

“At the end of the day, in Turkey it’s a continuum, a constant erosion of social liberties,” FIM Partners’s Balcells said. “When you have a very bad macro framework, one contaminates the other and creates a negative feedback loop.”

The flareups come as developing economies grapple with higher inflation amid the war and a surge in US Treasury yields. Indonesia’s central bank surprised markets with a larger-than-expected rate hike and a pledge to step up currency intervention. The Reserve Bank of India, which already acted to prop up the rupee, is considering all options to stabilize the currency, including raising borrowing costs.

High interest rates have so far helped support currencies across Latin America, but upcoming elections are bound to exacerbate volatility going forward.

Matthew Graves, a portfolio manager at PPM America, said he’s heading into election season with “pretty limited exposure.” Thierry Larose at Vontobel Asset Management AG is shunning dollar bonds from Colombia, where conflicting polls have left traders fretting left-wing Senator Ivan Cepeda will emerge victorious facing a divided opposition. Jeff Grills, head of EM debt at Aegon Asset Management, is underweight Brazilian debt as upcoming elections add to doubts about the nation’s fiscal outlook.

The jitters are even hitting Peru, where markets are rarely rattled by the country’s turbulent politics. The currency has weakened 1.5% since leftist Roberto Sanchez unexpectedly secured a spot in the runoff, prompting JPMorgan Chase & Co. strategists to recommend cutting exposure to the sol.

“Peru and Colombia will be important, particularly Colombia because the left is much more radical and I think could be more challenging,” Pierre-Yves Bareau, head of emerging-market debt at JPMorgan Asset Management in London. “The market was maybe under appreciating the odds of the left being reelected.”