Political risk a major hindrance to growth in emerging markets

But plenty of other countries have their own “unique developments.”
Thailand’s stock market SETI bucked the global upwards trend last week, losing some seven per cent in two days on concerns over the health of 81-year-old King Bhumibol Adulyadej before recovering somewhat on Friday.

Latvia’s lat was also pushing toward the bottom of its trading band against the euro last week, continuing to suffer from concerns its IMF-EU deal could be threatened if it fails to pass required budget cuts.

Latvia had unstable governments for much of the last decade without hurting the then-booming economy, but coalition failure in the coming months, again threatening financial aid, might test the lat’s peg to destruction.

On Friday, the pressure on Turkish stocks and the lira came from a Constitutional Court ruling ordering the equalising of a withholding tax between foreign and domestic investors, seen as possibly deterring outside investment.

Foreign investors are also watching the fight of Turkish private media firm Dogan Yayin to free itself from a record tax fine, which it says is in response to its critical news coverage of the government.

The firm said on Friday a court had rejected an appeal by one of its units against the fine, a setback which further hit its stock price.

Investors are watching a host of other political risks below the surface across emerging markets from Central and Eastern Europe to South Africa.

Political chaos in Ukraine is also expected to increase ahead of January presidential elections, further undermining one of the economies worst hit by the crisis.

“I don’t think any of these stories are going to go away,” said Commerzbank’s Ganske. “And at this stage in the cycle they become much more important.”