Arab Spring, meet Malaysia’s summer of discontent.

That thought is surely on Prime Minister Najib Razak’s mind as the dust settles from Saturday’s botched demonstrations in Kuala Lumpur. By “botched” I mean the way Najib mishandled what should have been a ho-hum political-reform rally of little note by the international news media.

Public-relations experts would have told Najib to let the Coalition for Clean and Fair Elections have their day in the capital. Let them wave signs and wear their yellow shirts. Instead, he tried to stop the rally, increasing its size. Then, he cracked down. Police fired tear gas and detained 1,697 people, turning the event into a top cable TV news story.

The over-the-top response did something worse: It enraged Malaysians who weren’t all that interested in rallying before Saturday. It also underlined the rise in political risk sweeping Asia, something that investors would be wise to track.

No serious observer expects an exact Asian rerun of the Arab Spring movement that saw uprisings topple leaders in Egypt and Tunisia and threaten regimes in Syria, Libya and Yemen. But then neither do serious people argue that Asia has done enough to enhance its democratic credentials during the past 10 years.

Political Change

Malaysia’s protest was the biggest since 2007 -- roughly 20,000 people. It came amid rising calls for political change from Thailand to China. What these nations have in common is that the overhaul in domestic political systems lags behind economic and financial reforms.

Take Thailand, where voters this month ejected the incumbent Democratic Party, which had used soldiers to disperse opposition protests in 2010, leading to more than 90 deaths. The party had promised to attack the corruption and undemocratic ways of the government run by Thaksin Shinawatra that soldiers ousted in 2006. Last week, fed up voters went full circle, making Thaksin’s sister premier.

Officials in China are pulling out all the stops to clamp down on political activists amid the so-called Jasmine Revolution. Nothing unnerves the Communist Party in Beijing more than the specter of social discontent. The winds of change are even sweeping Singapore; its ruling party in May won its narrowest election victory since independence in 1963.

Common Threads

Although the causes of such tension differ from country to country, there are a few common threads. One is the frustration of the have-nots as they watch the haves get richer. Another is rising global commodity prices, which make it harder for many to make ends meet. Finally, political modernization has been slower than critics hoped.

Malaysia’s case is especially complicated thanks to the inescapable issue of race. The conventional wisdom is that Saturday’s protests will delay Najib’s pledge to dismantle a 40-year preferential program that favors the Malay majority. The policy makes it harder for Chinese and Indian Malaysians to find good jobs, and its quotas scare away foreign investors. It holds Malaysia back in an increasingly competitive world.

To me, Najib wasn’t moving fast enough before Saturday. Foreign executives considering whether to build a factory in Malaysia want a clear schedule: By Jan. 1, 2012, we will do this, and by Jan. 1, 2013, we will do that. Instead, Najib offered vague intentions without meaningful or specific goals.

Misplaced Priorities

It’s no mystery why. All that matters to the United Malays National Political Organisation is clinging to its five-decade hold on power. Such misplaced priorities explain why Malaysia has been slow to streamline the economy and encourage the kind of entrepreneurialism that creates well-paid jobs. It’s also why leaders are timid about scrapping productivity-killing policies that only benefit portions of the population.

The question now is which way Najib turns. At this point, he may avoid calling an early election this year -- there’s just too much risk for him. Which direction he takes in changing policy is an even bigger unknown. On July 10, the Guardian newspaper carried comments by Najib in which he cautioned protesters not to test his party’s will. “We can conquer Kuala Lumpur,” he said.

What can we make of a leader who promised reform and moderation and now sounds like a Roman emperor? Can a nation that arrests almost 1,700 people, some just for wearing yellow shirts, still be called a democracy? Najib’s response even had Malaysians feeling sorry for opposition leader Anwar Ibrahim, who was injured by flying tear gas canisters.

Events in Kuala Lumpur remind us that geopolitical risks are on the rise in Asia. Yes, growth rates are healthy even as the U.S., Japan and Europe limp along. The establishment of democratic institutions has been far less robust, though, and entrenched leaders may pay a considerable price. Maybe not in the Hosni Mubarak-sense, but the potential for upheaval shouldn’t be underestimated. There really is a bull market in the desire for political change.

Investors looking for places to put their money tend to lock themselves in offices combing through statistics, bond spreads, stock valuations and central-bank policies. In Asia’s case, more success might be had by looking out the window at the street demonstrations below.

(William Pesek is a Bloomberg View columnist. The opinions expressed are his own.)

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To contact the writer of this column: William Pesek in Tokyo at wpesek@bloomberg.net.

To contact the editor responsible for this column: James Greiff at jgreiff@bloomberg.net.