August 10, 2018 / 4:02 PM / a year ago

UPDATE 4-Argentina markets tumble, graft scandal fuels uncertainty

(Updates to market close, adds rise in country risk index)

By Jorge Otaola and Walter Bianchi

BUENOS AIRES, Aug 10 (Reuters) - Argentina’s peso closed down 3.86 percent on Friday and the stock market ended 1.44 percent lower, pressured by emerging markets turmoil and a corruption scandal that has touched some of the country’s top business leaders, traders said.

Local daily newspaper La Nacion last week published the content of what it said were notebooks kept by a driver employed by the former government that detail how he transported bribe money from construction companies to government officials from 2005 to 2015. More than a dozen arrests have been made as the scandal spreads.

The peso, which has lost more than 35.8 percent since the start of the year, was trading at 29.25 per U.S. dollar at the end of the day on Friday. Argentina’s Merval stock index opened 3 percent lower but went on to erase about half of its losses.

Argentina’s dollar denominated sovereign debt spread to comparable U.S. Treasuries widened by a whopping 69 basis points on Friday to 701 according to JPMorgan’s EMBI Global Diversified index. That marked the biggest yield gap for Argentina since February 2015 and the sharpest daily move of any emerging or frontier market country on Friday.

Investors have shunned Argentine assets this year over worries about the country’s economy, sparking a run on the peso. The corruption scandal, as well as general investor flight from emerging markets on Friday, exacerbated the fall.

“The scandal about alleged corruption has added to the uncertainty,” said Christian Reos, an analyst with local brokerage Allaria Ledesma.

Over the counter bonds issued by the Argentine government fell 2 percent on average at the end of the day.

A plunge in the Turkish lira rocked emerging markets, sending investors scurrying for safety in assets such as the yen and U.S. government bonds. The lira has fallen on worries about Turkey’s economy, lack of action from policymakers and a deepening rift with the United States.

“The lira is getting vaporized and that’s dragging down other emerging market currencies,” Nery Persichini, an analyst with Buenos Aires brokerage GMA Capital, tweeted.

The investigation in Argentina will have a negative impact on the South American country’s economic growth, an official with the Fitch credit ratings agency said on Thursday.

Ratings agency Moody’s said on Monday that the “corruption scandal is credit negative for Argentine corporations.” It cited “bribery investigations that have led to the arrest of senior Argentine business leaders.” (Reporting by Jorge Otaola and Walter Bianchi, Writing by Hugh Bronstein, Scott Squires and Rodrigo Campos; editing by Susan Thomas and Tom Brown)

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