EM Review: Virus Jolted Stocks and Currencies as Outbreak Spread

(Bloomberg) -- Emerging-market stocks and currencies gyrated last week amid growing concern that the coronavirus outbreak will weigh on global growth. More companies said it will hurt their business and the Federal Reserve warned of disruptions to global markets. While a gauge of equities snapped a two-week losing streak, it ended the stretch on a losing note, while an index of currencies dropped for a third week.

The following is a roundup of news and highlights in developing economies for the week ending Feb. 9.

Read here our emerging-market weekly preview, and listen here to our weekly podcast.


  • China returned from an extended Lunar New Year holiday
    • Central bank injected the most cash in a year on a net basis and set its daily yuan fixing stronger than the key 7 per dollar level on Tuesday to support markets
    • Also delayed release of January trade data to March 7, together with February numbers
    • Securities regulator has tapped some brokerages and funds to support the stock market, which suffered an onslaught of selling on Monday as investors grappled to assess the impact of the virus, people familiar with the matter said
    • President Xi Jinping said the momentum of the nation’s economy won’t change, in a phone conversation with President Donald Trump
  • Efforts to contain the coronavirus accelerated, with regions from Hong Kong to India putting in place more restrictions on travelers from China
  • Trump and Xi reaffirmed their commitment to implementing the phase-one trade deal signed between the two countries last month. The two presidents “agreed to continue extensive communication and cooperation between both sides,” the White House said in a readout of the leaders’ call on Friday, China time
    • China will halve tariffs on some $75 billion of imports from the U.S. later this month, reciprocating a U.S. action and likely satisfying part of the interim trade deal
    • Secretary of State Michael Pompeo delivered a tough warning about China in a speech to U.S. governors, urging caution in business dealings as Beijing looks for ways to exploit U.S. vulnerabilities and expands repression at home
  • The U.S. Senate voted to acquit Trump on charges he abused his power and obstructed Congress, ending a historic, bitterly partisan fight and leaving the final judgment on his actions up to voters in November
    • The Trump administration is going ahead with controversial new rules that would clear the way for the U.S. to start applying punitive tariffs on goods from countries accused of having undervalued currencies, the Commerce Department said
    • The U.S. trade deficit narrowed in 2019 from the widest in a decade, reflecting plunges in shipments from China and oil imports
  • Asian central banks signaled strong policy action to counter a hit to their economies from the virus
    • The Bank of Thailand cut its benchmark interest rate to a record low of 1%, a move that had been difficult for economists to predict. Singapore’s policy makers indicated there was room for further easing in the currency, sending the local dollar to its weakest level in four months
    • The Philippine central bank resumed monetary easing, cutting its benchmark rate by 25 basis points to 3.75%. India’s central bank left interest rates unchanged for a second straight meeting as expected, while keeping the door open for more easing when inflation eases
  • Asian manufacturing gauges stumbled in January, suggesting the U.S.-China trade agreement failed to spur sentiment for an industry now bracing for supply-chain disruptions and a blow to demand from the spread of the coronavirus
  • Brazil’s central bank intends to hold rates going forward to consider the impact of the record-breaking monetary easing cycle it concluded on Wednesday with a quarter-point cut. The bank lowered the Selic rate to 4.25%
  • The Bank of Russia delivered a sixth consecutive bout of monetary easing and said a further rate cut is possible next month, as inflation continues a retreat below target
  • The Czech Republic unexpectedly became the world’s first country to raise rates this year, lifting its key rate by a quarter-point to 2.25%
  • OPEC expects Russia to respond in days, rather than weeks, to a production-cut proposal as the cartel confronts a price rout triggered by the collapse in petroleum demand from China, according to a delegate
  • Turkey’s inflation accelerated faster than forecast for a second month, pushing its real interest rates further below zero and to the same level as Japan’s after five rounds of aggressive monetary easing; the lira weakened beyond 6 per dollar for the first time on a closing basis since May
    • The nation’s central bank kicked off its biggest government debt buybacks in over a decade, helping fill a void left by foreigners and adding momentum to the developing world’s strongest bond rally this year
    • Turkey sold $4 billion of Eurobonds on Friday
  • Ghana sold sub-Saharan Africa’s longest-ever Eurobond as part of a $3 billion deal that was almost five times oversubscribed
  • Fidelity Investments scored a victory over the Argentine province of Buenos Aires by compelling officials there to make good on a $250 million payment they had threatened to withhold
  • The fallout from the coronavirus outbreak put an end to a 16-week streak of flows into emerging-market exchange-traded funds that reached almost $19 billion
Asset Moves Last Week:Weekly
MSCI EM stocks index+2.8%
MSCI EM FX index-0.2%
Bloomberg Barclays Global EM Local Currency bond index+0.5%


  • China reduced rates as it injected cash into the financial system Monday, with the central bank seeking to ensure ample liquidity as markets plunge. It cut borrowing costs on the funds by 10 basis points
  • A decline in South Korean exports worsened in January despite signs of green shoots in global trade as the Lunar New Year holiday reduced the number of working days at the end of the month
    • The government will implement “stern measures” to stabilize the foreign-exchange market if the currency swings due to speculative demand, Finance Minister Hong Nam-ki said
    • Inflation quickened in January at the fastest pace in more than a year
    • One Bank of Korea member said rate cuts and fiscal spending helped improve economic sentiment and financial conditions, reducing downside risks “somewhat” in the macro economy, according to minutes of the Jan. 17 meeting
    • Current-account surplus in December narrowed to $4.33 billion from a year earlier
  • Indonesia’s economy expanded at its weakest pace in four years in 2019, opening the door for additional rate cuts as the nation braces for the impact of a spiraling coronavirus crisis

    • The nation’s reserves jumped to $131.7 billion in January, highest since January 2018, driven by inflows from government’s global bonds sale, according to the central bank
    • Consumer prices increased 2.7% on year in January, compared with estimate of 2.8% gain
    • The central bank is leaving the door open to further rate cuts as it continues to assess the spread of the coronavirus, Deputy Governor Dody Budi Waluyo said
    • Bank Indonesia seeks to maintain attractive rates for investors
  • The Reserve Bank of India will provide up to 1 trillion rupees ($14 billion) of liquidity via one-year and three-year long-term repos at the policy repo rate

    • The Securities and Exchange Board of India has paved the way for currency-settled rupee derivatives trading on stock exchanges at International Financial Services Centres
  • Thailand’s cabinet approved measures, including a tax cut on jet fuel and personal income tax submission deadline extension, to help the tourism sector during the coronavirus outbreak, according to the Finance Ministry
    • The central bank has policy room to respond to unexpected events, Governor Veerathai Santiprabhob said; he also said the currency is still out of line with economic fundamentals despite recent weakness
    • Constitutional Court ruled that the parliamentary vote in favor of the fiscal year 2020 budget bill is not void
  • Taiwan’s vice president-elect will make the most high-profile visit to the U.S. by a Taiwanese politician in decades
    • Taiwan’s January exports fell 7.6% y/y; estimate was +1%
  • Malaysia is free from recession risks and the government’s stimulus package to be unveiled soon will help support the economy, Edge Financial Daily reported, citing Finance Minister Lim
    • December exports rose 2.7% from a year ago, beating the median estimate of a 2.5% decline
  • Philippine central bank Governor Benjamin Diokno said he anticipates the next rate cut will probably come around the middle of this year. Separately, he said only about a third of the funds released by the recent cuts in banks’ reserve requirement ratio are being lent out

    • The economic team will stick with economic growth target of 6.5%-7.5% for 2020 despite the coronavirus outbreak, Finance Secretary Carlos Dominguez said
    • President Rodrigo Duterte plans to order the termination of a longstanding military pact with the U.S., the Philippine Daily Inquirer reported


  • Jitters over an economic slowdown outweighed concern about surging inflation as Poland extended an almost half-decade lock on interest rates
    • Poland became the first emerging-market sovereign to get paid for borrowing in euros via a syndicated bond deal
  • Russia’s new first deputy prime minister vowed to oversee a “serious injection of liquidity” into the economy in his first speech since a government overhaul aimed at boosting growth
  • Turkey cut the amount of FX swaps and derivatives deals that banks can carry out with foreign investors, a measure designed to stabilize the lira
    • President Recep Tayyip Erdogan warned Syria to end its siege of two Turkish military outposts, and issued an oblique threat of retaliation against its Russian backers
    • Turkey is deploying additional military supplies to fortify its outposts in Syria’s Idlib province, Defense Minister Hulusi Akar told Hurriyet newspaper, to defend against any bigger confrontation with Russian-backed Syrian fighters in the area
  • Qatar is weighing plans to tap international bond markets as soon as the first quarter, according to people with knowledge of the matter
  • Saudi Arabia’s sovereign-wealth fund sold almost all of its Tesla Inc. shares last quarter, nearly exiting what had been one of the largest holdings in the electric-car maker
  • Business conditions in the United Arab Emirates worsened for the first time in over a decade as the virus outbreak in China risks further disruption to the Gulf nation’s trade and tourism
  • Non-oil private sector growth in Egypt slowed to its lowest level in almost three years, dashing hopes for a rebound as weak consumer demand offset the potential boost of single-digit inflation
  • A policy statement by Lebanon’s new government calls for rate cuts and bank recapitalization in a rescue plan that includes “painful steps” to avoid total collapse, Reuters reported, citing a draft
  • Arab nations dialed back criticism of Donald Trump’s Middle East peace plan and proposed a more moderate resolution that called for a Palestinian state based on the 1967 borders, but no longer condemned the U.S. proposal directly
  • South African government bonds are finding favor with foreign investors, extending a rally even as concerns over the effect of the coronavirus continue to roil global markets

    • Non-residents bought the most of the debt on a net basis in 16 months on Tuesday
    • Sentiment in South Africa’s manufacturing industry fell to the lowest in four months in January as weak demand weighed on factory output
    • Proposals to reorganize the 454 billion rand ($30 billion) of debt owed by South Africa’s state-owned power company Eskom are close to completion, according to an official who’s overseen their formulation
    • The Congress of South African Trade Unions, the country’s biggest labor federation, said significant progress was made on Wednesday in its talks with government and business over its proposed plan to cut Eskom’s debt; Cosatu later said it wants almost $7 billion of Eskom’s debt to be converted into equity for workers
    • Two South African labor unions have threatened legal action against the state pension fund manager if it accepts a proposal to settle debt held by Eskom Holdings SOC Ltd. using workers’ retirement money, according to Johannesburg’s Rapport newspaper
    • South African banks have refused to provide an 8 billion-rand loan to enable a turnaround at the loss-making state airline, according to the Sunday Times
  • Ghanaian prosecutors charged a former finance minister for alleged crimes that contributed to the collapse of one of the West African nation’s biggest local lenders during a banking crisis
  • Israel’s cabinet approved the appointment of Andrew Abir, longtime markets department chief, as the central bank’s deputy governor, with his term to begin immediately

    Latin America:

    • Inflation surprised to the downside in Brazil and Mexico in January
    • Brazil’s state development bank BNDES unloaded its voting stake in oil giant Petrobras as part of a wave of asset sales
      • Industrial output recorded its second straight monthly decline in December as capital goods fell the most in a year and a half
      • At least 10 proposals to boost public finances and spur growth will test Brazilian lawmakers’ appetite for additional reforms this year
      • Country posted a $1.75b trade deficit in January versus $300m surplus forecast
      • Negotiations for new orders of Brazilian meat by Chinese buyers have been on hold since the Lunar New Year break
    • Argentina’s government managed to swap just 10% of $1.6 billion peso-denominated notes that come due Feb. 13
      • Argentina will seek more time to repay the record $56 billion credit line it obtained from the International Monetary Fund, Economy Minister Martin Guzman said
      • Guzman also said the country can’t service bond interest payments for too long
      • The province of Buenos Aires looks to aim for the same March 31 deadline as the national government to finish debt talks
      • Clarin newspaper reported a potential endorsement from the IMF to Argentina to offer bondholders a 15% haircut with a grace period of three to four years
      • Argentine Vice President Cristina Fernandez de Kirchner called for the International Monetary Fund to take a loss on its record loan to the country, Clarin reported
    • Mexican interest rates are so high that not even the central bank’s widely expected easing move seems likely to dent the peso’s world-beating rally
      • Mexico’s president vowed not to raise taxes, but they’re creeping up anyway as the government struggles to boost revenue in a stagnant economy
      • Pemex’s total financing needs are 199 billion pesos ($11 billion) in 2020
    • Chilean economic activity index expanded year-on-year in December for the first time in the last quarter of 2019 despite a wave of anti-government protests that shuttered stores and spooked investors
      • China’s copper buyers are asking Chilean miners to delay shipments due to port shutdowns, adding to tumult in global commodity trade in the wake of the coronavirus outbreak
    • Venezuelan companies will now be able to issue debt in foreign currency for financing purposes, President Nicolas Maduro said
    • Colombia’s central bank staff sees rates rising in 2020, Chief Economist Hernando Vargas said at a presentation of the bank’s quarterly monetary policy report
      • Colombia’s pass-through from weaker currency to inflation is among the lowest in the world, central bank Governor Juan Jose Echavarria said
      • Policy is “moderately expansionary”, according to minutes of central bank’s Jan. 31 meeting
      • CPI rose 0.42% on month in January, compared with 0.56% estimate
    • Ecuador was downgraded to Caa1 from B3 by Moody’s, which cited popular resistance to measures to narrow the deficit
      • Finance Minister Richard Martinez said downgrade was premature
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