Research & Insight

Recently, Colombia's presidential election has been dominating headlines about the country, as the largely ignored economy quietly surges ahead in the background. It is now very likely that former defence minister, Juan Manuel Santos, will win as voters opt for a continuation of President Uribe's economic and social reforms. The wide margin of the first round result, while not an outright majority victory, belied pre-election polls which showed surprisingly strong support for the Green Party's candidate, Antanas Mockus. This is positive news for investors given the Uribist majority in congress, which should be able to continue to push through economic reform and the lower risk of a change in market friendly government policy.

The MSCI Global Emerging Markets index fell 8.75% in May in response to the global de-risking process that has followed renewed sovereign debt and global growth concerns. No market or sector has been able to escape these trends, as would be expected in a sharp sell-off it was defensive sectors such as healthcare and staples that outperformed the more cyclical sectors such as commodities.

MSCI Asia ex Japan fell 8.39% in USD in May. The markets have continued their fall from the peak in mid April as a succession of negative issues continued to plague investors. The primary concern has obviously been the sovereign debt crisis in Europe and its effect on global growth and risk appetite, although other issues such as the oil spill in the Mexican Gulf and the Hon Hai iPhone suicides haven’t helped.

With European woes playing out, KOSPI has declined c.10% from its recent peak with massive foreign selling. As one of the liquid markets in emerging markets, the Korean market seems to have been a main target for the foreign money pulling out of the region.

There have been 10 suicides and 2 attempted suicides this year at Hon Hai’s Foxconn factory in Longhua near Shenzhen (about an hour north of Hong Kong by car) and this has put the company’s labour practice and factory working conditions into the spot light. It has been widely reported in the media with front page reports in the western press and items on CNN and BBC. Hon Hai’s major customers, like Apple, HPQ and Sony, are also under considerable pressure to investigate. This has also raised questions about China’s labour practices in general. For example, there have been media reports of all 4 of Honda’s China plants going on strike on a pay dispute.