EM Review: Flight From Risk Due to Virus Recalled Panic of 2008

(Bloomberg) -- Emerging-market stocks fell the most since the financial crisis last week amid concern the coronavirus epidemic will derail global growth, and that central banks and governments aren’t doing enough to contain it. Currencies from oil exporting countries such as Russia and Colombia tumbled after crude prices crashed.

The following is a roundup of emerging-market news and highlights for the week ending March 13:


  • Oil dropped the most in almost 30 years after Saudi Arabia and Russia vowed to pump more in a battle for market share, just as the coronavirus spurs the first decline in demand since 2009
    • Crash in crude prices prompts China’s government to consider buying more for state reserves, according to people with knowledge of the matter
  • U.S. President Donald Trump declared a national emergency Friday over the coronavirus outbreak, opening the door to more federal aid for states and municipalities; the government will waive interest on student loans owed to federal agencies until further notice
    • President had already said the U.S. would significantly restrict travel from Europe to the U.S. for the next 30 days
    • Trump said he would seek a payroll tax cut and very substantial relief for industries that have been hit by the virus
    • Treasury Secretary Steven Mnuchin said he doesn’t expect the coronavirus to tip the U.S. economy into recession, even though growth will slow
      • The outbreak is now a pandemic, the World Health Organization said, urging governments to step up containment efforts
      • Governments of Italy, U.K. and Australia joined the ranks of those introducing stimulus measures to counter economic damage from the coronavirus
  • Federal Reserve offered a huge injection of liquidity to the Treasury market Thursday to counter signs of dysfunction as investors panic over the coronavirus
    • Fed promised a cumulative total above $5 trillion, in a sign officials will do whatever it takes to keep short-term financing rates from spiking
    • Central banks from Australia to Canada joined the Fed in pumping cash into stressed markets, seeking to calm panicking companies and stem a surge in short-term financing rates
  • The People’s Bank of China cut the amount of cash that banks have to set aside as reserves, releasing 550 billion yuan ($79 billion) of liquidity
  • A Chinese foreign ministry official sent a tweet saying the U.S. army may have had a role in spreading the coronavirus, highlighting growing tensions between the world’s biggest economies as both governments seek to deflect blame for the outbreak
  • North Korea fired what appeared to be three short-range ballistic missiles off its eastern coast, raising regional security concerns as world leaders battle the spread of the coronavirus
Asset Moves Last Week:Weekly
MSCI EM stocks index-12%
MSCI EM FX index-1.7%
Bloomberg Barclays Global EM Local Currency Bond Index-3.4%


  • Circuit breakers triggered trading halts from Bangkok to Manila and Jakarta as Asia’s developing markets struggled to cope with an exodus of foreign capital
  • Chinese President Xi Jinping visited the coronavirus epicenter of Wuhan for the first time since the disease emerged, a trip intended to project confidence that his government has managed to stem its spread
    • China’s economy is beginning to revive as the government signals progress in battling the coronavirus. The economy was likely running at 70% to 80% capacity last week, according to a Bloomberg Economics report, while China International Capital Corp. estimated it was at about 76% as of March 8
    • The U.S. is willing to show China some flexibility on its pledges to boost American imports as long as Beijing ensures exports don’t surge when production returns to full strength and widen the trade imbalance between the two economies, people familiar with the discussions said
    • China’s inflation slowed as the coronavirus hammered demand, with a measure of price gains that strips out food and energy prices slumping to the lowest in a decade
    • China will inject 12.1 billion yuan ($1.73 billion) of capital into Bank of Jinzhou Co., adding to a rescue of the lender last year as authorities take steps to shield the nation’s banking system from the coronavirus
  • India’s central bank pledged to use its record $481 billion foreign-currency arsenal to stem a market rout that’s threatening growth in an already-slowing economy
    • India’s current-account deficit shrank to the narrowest in 14 quarters, helped by a diminishing trade gap and higher earnings from services exports and remittances
    • India’s inflation rate dropped in February as food prices eased, a sign of a turnaround just as oil costs plummet
    • India once again finds itself defending the stability of its financial system after the biggest bank failure in its history
  • Bank of Korea is considering an emergency board meeting and will take steps to stem excessive foreign-exchange movements as markets around the world slump on fears over the coronavirus
    • South Korea will carry out more measures to stabilize financial markets if needed, on top of strengthened rules on stock short-selling, Vice Finance Minister Kim Yongbeom says
  • Indonesia announced details of a second emergency stimulus plan, including tax breaks for companies and manufacturers, in a bid to bolster the economy from the coronavirus crisis
    • Indonesia’s central bank is stepping up efforts to shield the economy after a plunge in oil prices sent a new shockwave through markets already pressured by the coronavirus
    • The nation’s budget deficit is set to widen to as much as 2.5% of GDP as the outlook for the economy deteriorates due to the coronavirus and the crash in oil price
    • Indonesian state companies plan to spend 10 trillion rupiah ($675 million) to buy back shares after concerns over the economic impact of the coronavirus and a crash in oil prices sent local stocks into a bear market
    • The country’s stock exchange will halt trading for 30 minutes if the Jakarta Composite Index falls more than 5% and another half hour if it drops over 10%, according to new rules effective March 11
    • Global funds have pulled more than $2.8 billion from Indonesian bonds this year, a record outflow that has sent policy makers into high alert for further volatility
  • Malaysia’s prime minister picked the head of one the country’s main banks as his new finance minister amid heightened global risks and domestic policy uncertainty
    • Malaysia has appointed Azam Baki to lead its anti-graft agency after the previous chief stepped down following a change of government
    • Malaysia will review a stimulus package unveiled by the previous government to see whether there’s more to be added, Prime Minister Muhyiddin Yassin said
  • Thailand’s government approved a package of stimulus measures that it said will inject about 400 billion baht ($12.6 billion) into the economy to counter the impact of the coronavirus outbreak
    • Thai government has suspended a plan to hand out 2,000 baht each to millions of people for now, Prime Minister Prayuth Chan-Ocha said
  • Philippine President Rodrigo Duterte said he’s placing the capital region on a lockdown for a month to help contain the coronavirus outbreak after declaring a state of public health emergency on Monday
    • Duterte will be tested for coronavirus and key economic officials -- including the central bank governor and finance minister -- are going into quarantine as infections rise
    • Philippines is watching for opportunities to offer $1 billion to $1.5 billion in dollar-denominated debt and up to $1 billion in Samurai bonds as overseas yields fall due to the coronavirus outbreak, Treasurer Rosalia de Leon says
    • Philippines expects the budget deficit to breach this year’s ceiling and remittance growth to slow because of the coronavirus outbreak, officials say
    • Bangko Sentral ng Pilipinas has a menu of options available to support financial markets, Deputy Governor Francis Dakila says
  • Taiwan’s central bank disclosed its outstanding position in foreign-exchange swap trading, a rare move aimed at answering calls for improved transparency
    • Central bank’s outstanding position in foreign-exchange swap trading was $99.1 billion at the end of February
    • Taiwan’s government plans to spend an additional NT$40 billion ($1.3 billion) to support the economy amid the coronavirus outbreak


  • South Africa’s rand plummeted as investors fled riskier assets, but demand at the country’s weekly government bond auction hit a record, with local yields at levels where investors were comfortable enough to return to the market
    • South Africa’s indebted power utility Eskom Holdings SOC Ltd. won a High Court ruling against the energy regulator, which had blocked the company from recovering some costs it says it incurred during the 2019 financial year
    • Business sentiment plunged to the lowest level in more than two decades in the first quarter and could weaken even further as the coronavirus hits the domestic and global economy
  • Nigeria’s fiscal and monetary authorities will announce measures in coming days to deal with the economic fallout from the coronavirus
  • Poland’s government shut schools for two weeks as part of a campaign to contain the spread of the coronavirus. The central bank predicted a “soft landing” for the economy as falling oil prices sent financial markets plummeting amid growing fears over the outbreak
  • Serbia followed the lead of central banks in the U.S. and the U.K. with an emergency interest-rate cut to offset the economic impact of the coronavirus
  • Lebanon was waiting to see if foreign bondholders will agree to negotiate new terms on more than $30 billion of debt as the government attempts to contain the country’s worst financial meltdown amid tightening liquidity
    • Lebanon will present what it considers a conclusive economic and financial plan to the International Monetary Fund as it prepares for talks with creditors after announcing it would freeze a Eurobond payment, Finance Minister Ghazi Wazni said
    • Lebanon was downgraded to selective default by S&P Global Ratings, days after the government set the stage for the nation’s first-ever missed payment on international bonds
  • Battle for control of the global oil market intensified as Saudi Arabia promised to increase production capacity and the United Arab Emirates said it plans to pump as much as possible next month
    • Saudi Arabia plans to boost oil output next month to above 10 million barrels a day as it responds to the collapse of its OPEC+ alliance with Russia
    • Shares in Saudi Aramco dropped below their IPO level for the first time as the looming price war in global crude markets battered the outlook for the kingdom’s flagship oil company
    • The company said Sunday it was slashing planned spending this year, as it announced its 2019 results
  • Iran urged the U.S. to ease sanctions hindering imports of medicines and food it needs to fight a major outbreak of the coronavirus
  • Government of Kuwait declared the period of March 12-26 a holiday in an effort to limit exposure to the coronavirus outbreak
  • First slowing in Egyptian inflation since October may not spur further interest-rate cuts as authorities brace for the potential impact of the coronavirus outbreak on capital outflows and tourism income

Latin America:

  • Brazil’s markets plunged, with stocks triggering a circuit breaker four times in a week and the currency sinking past 5 per dollar to a record, as local political woes added to a coronavirus-fueled global sell-off
    • Congress overturned a Presidential veto on some welfare benefits, a decision that will expand government expenses by 217 billion reais ($45 billion) in 10 years, about 20% of the savings created by last year’s pension reform
    • Brazil’s swap rates surged and trade was temporarily halted; investors closed bets on an additional rate cut in March 18, which was fully priced in
    • Central bank intervened in the spot and foreign-exchange swap auctions
    • Policy makers are preparing measures to support an economy that’s “basically stalled” as coronavirus disrupts activity, Economy Minister Paulo Guedes said
    • Brazil’s inflation rose 0.25% in January, more than analysts predicted, largely driven by seasonal factors; industrial output rose more in January than economists forecast as capital goods production bounced back
    • President Jair Bolsonaro tested negative for coronavirus, giving his inner circle and allies some relief after a close aide was diagnosed with the illness
  • Mexico’s central bank announced a $2 billion foreign-exchange hedge auction as the currency slid to a record
    • Banxico had expanded the upper limit of its foreign-exchange hedge program earlier in the week
    • Pemex bond yields and credit default swaps jumped as oil prices slumped; the company needs “substantial” support from Mexico, Moody’s said
    • Mexico’s finance minister said the country’s oil income is completely covered by its sovereign oil hedge
    • Inflation accelerated more than economists expected to the fastest since July
    • Mexico is planning to grant loans to commercial sectors that could be hit hardest by the coronavirus
  • Argentina said it intends to restructure as much as $68.8 billion in bonds issued under foreign law, a formal step in negotiations with creditors; it’s the first time President Alberto Fernandez’s government has explicitly stated the nominal value of debt held by foreign bondholders it plans to restructure
    • Latin American bankers from HSBC Holdings Plc, Citigroup Inc. and Bank of America Corp. will lead the restructuring of more than $76 billion of debt owed by Argentina and the province of Buenos Aires
    • Creditors and government officials are eying a $1.4 billion payment due on May 7 as a more urgent date to hammer out a deal
  • Fitch Ratings said it may lower Chile’s credit rating because of slowing growth and higher government spending
  • Ecuador’s bonds plunged to around 40 cents after the government announced plans to slash spending and delay payments on bilateral debt amid an economic crisis
  • Peru’s central bank kept borrowing costs unchanged in the face of global market turmoil, giving priority to stabilizing the currency, while standing ready to add stimulus later

    • Central bank is evaluating the magnitude of the crisis triggered by the coronavirus outbreak before deciding on economic stimulus, said bank’s chief economist, Adrian Armas.
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