Emerging Markets: What Has Changed – Friday, Feb. 17

Written from my colleague Dr. Win Thin

• Head of Samsung Group Jay Y. Lee was formally arrested on allegations of bribery, perjury, and embezzlement.
• The assassination of Kim Jong Un’s half-brother suggests the political situation in North Korea may be heating up.
• The Polish central bank is tilting more hawkish.
• The Turkish central bank said it will allow domestic companies to use liras to repay export loans.
• Nigerian President Buhari may re-emerge into the public eye soon.
• South African regulators are investigating a dozen banks in New York and Johannesburg for possible collusion in off-shore ZAR trading.
• Mexico’s President Pena Nieto has reportedly asked Banco de Mexico Governor Carstens to stay on until December.
• New Venezuelan Vice President El Aissami was put on the US Treasury’s list of foreign nationals subject to economic sanctions.

In the EM equity space as measured by MSCI, Brazil (+2.6%), Hungary (+2.5%), and Qatar (+2.0%) have outperformed this week, while Peru (-3.7%), Egypt (-2.8%), and Colombia (-2.7%) have underperformed. To put this in better context, MSCI EM rose 0.9% this week while MSCI DM rose 0.9%.

In the EM local currency bond space, China (10-year yield -7 bp), Hungary (-6 bp), and Poland (-4 bp) have outperformed this week, while Russia (10-year yield +18 bp), Mexico (+16 bp), and Czech Republic (+12 bp) have underperformed. To put this in better context, the 10-year UST yield was flat this week at 2.41%.

In the EM FX space, EGP (+9.8% vs. USD), ZAR (+2.1% vs. USD), and TRY (+1.7% vs. USD) have outperformed this week, while COP (-1.9% vs. USD), PLN (-0.8% vs. EUR), and CLP (-0.6% vs. USD) have underperformed.

Head of Samsung Group Jay Y. Lee was formally arrested on allegations of bribery, perjury, and embezzlement. The arrest as linked to the influence-peddling scandal that resulted in the impeachment of President Park. Other shoes may drop, as the heads of all nine chaebol were hauled before parliament in December to answer questions about possible corruption. Some believe that this scandal and the ensuing fallout may fundamentally change the way business is done in Korea.