Czech Landscape Shifts: Babis's Bold Plans Stir Markets

Emerging market assets dipped following a strong previous week, driven by political shifts in the Czech Republic, where Andrej Babis's ANO party won elections. Babis's plans for increased government spending have raised eyebrows and could impact the Czech economy's traditional fiscal discipline.

On Monday, emerging market assets experienced a downturn after reporting strong gains last week, with a spotlight on the Czech Republic's political shift. This comes in the wake of Andrej Babis's ANO party securing an election victory, promising significant changes with substantial government expenditure aimed at raising wages, cutting taxes, and spurring economic growth.

The Czech crown showed a slight decline, losing 0.1%, while Prague's equities rose by 0.3%, setting a new market high. Babis aims to form a majority government with smaller parties, including the far-right SPD, amidst allegations of steering the country away from the European Union and NATO—claims he denies.

Across central-eastern Europe, fluctuations persisted, with the Polish zloty and Hungarian forint displaying minor changes. In the broader region, the MSCI index of emerging market equities fell 0.35%, halting a five-day rally, influenced by political unrest in France and broader European sell-offs.

(With inputs from agencies.)