* Investors becoming more discriminating
* Countries with specific political worries suffer
* Turkey, Latvia, Thailand, Romania suffer in markets
By Peter Apps, Political Risk Correspondent
LONDON, Oct 19 (Reuters) - As global markets come to the end of the broad recovery from last year's crash, political risk is developing as key to which emerging markets underperform -- with Romania, Thailand, Turkey and Latvia first to feel the pinch.
A Romanian coalition collapse, concerns over the health of Thailand's king, tax risks in Turkey and the difficulty of forcing through austerity measures in Latvia undermined those markets last week, a sign investors are becoming more discriminating.
Those market moves contrasted with a much more positive trend to global markets, with benchmark emerging equities up some 3 percent to around 14-month highs -- having risen a blistering 70 percent so far this year.
The desperate flight to safe havens from anything viewed as remotely risky that followed the collapse of Lehman Brothers last year was almost entirely undiscriminating and the flowback that accompanied the market recovery was equally herd-like.
But data from fund monitor EPFR shows that reflux is now almost 94 percent complete.
That means investors will be playing and choosing between individual emerging markets for maximum return rather than simply shovelling money in or out of the asset class as a whole.
"A couple of months ago, people were buying literally everything because the prices looked very cheap," said Michael Ganske, head of emerging markets at Commerzbank in London. "Now the rally is more mature and prices are higher, people are differentiating much more and looking at the individual country factors, including political."
If investors decide the rally has been overblown, what are perceived as riskier emerging market assets will likely be the first to be trimmed.
Stories like that of Ukraine's state gas firm Naftogaz, which technically defaulted on a $500 million Eurobond last month, or Kazakhstan's troubled banking sector, have put investors off holding the most uncertain assets.
The crisis has also made political risks more crucial than ever in a string of countries as they struggle to make painful adjustments to justify aid packages or retain the confidence of global financial markets.
In happier times, the failure of Romania's ruling coalition might have had little market impact, with investors more focused on longer-term macroeconomic trends such as euro convergence, as well as shorter-term interest rate moves.
But with Romania dependent on a 20 billion euro ($29.88 billion) IMF bailout package which requires a government to push through painful budget cuts, any political instability that could prompt a delay in the IMF payments could have drastic economic and market repercussions.
"UNIQUE DEVELOPMENTS"
Romania's leu hit seven-month lows last week, notably underperforming the rest of the region, and is expected to remain under pressure while politics remains uncertain -- although without too much impact on the wider regional markets.
"Developments in Romania are unique to that country," said Andrew Colquhoun, regional analyst at ratings agency Fitch.
But plenty of other countries have their own "unique developments".
Thailand's stockmarket bucked the global upwards trend last week, losing some 7 percent 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 towards 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."
(Additional reporting by Carolyn Cohn, editing by Mark Trevelyan)