No End to Pain in Emerging Markets Without Coronavirus Slowdown

(Bloomberg) --

Friday’s calm in emerging markets proved fleeting as the coronavirus outbreak worsened in Europe and the U.S. over the weekend.

Investors in developing-nation assets are hoping for further monetary and fiscal stimulus measures from governments across the globe this week. But even that might not be enough to boost markets reeling from their fastest collapse in more than a generation.

“There is increased bearishness among many we speak to,” Charles Robertson, Renaissance Capital’s London-based chief economist, said. “Proof the virus is being brought under control is needed before investors can begin to focus on the economic fallout from the lockdowns. A slowdown in Italy’s cases might help, but U.S. markets are unlikely to stabilize when active cases are rising by nearly 40% a day. We think we need to see at least half that figure.”

It’s time for the International Monetary Fund, World Bank, Group-of-Seven nations and China to offer “significant support” to emerging markets, he said.

Listen: EM Weekly Podcast: Another Sea of Red Despite Stimulus Measures

Emerging-market stocks slumped almost 10% last week and fell another 5% on Monday. A look at forward price-to-earnings ratios suggests a lot worse to come. Based on estimates for the next 12 months, the ratio for MSCI Inc.’s gauge of emerging equities has slipped from an almost 10-year high of 13.1 times earnings in January to 10.2. During the 2008 global financial crisis, it plunged below six.

The currency rout has also continued. Indonesia’s rupiah is heading toward a record low. The Mexican peso is already there, having fallen more than 10% against the rampant dollar since the start of last week. The Russian ruble has depreciated almost as much as Brent oil prices have collapsed to barely $25 a barrel. Even oil importers aren’t spared -- South Africa’s rand is at an historic low on a closing basis.

Here’s what to watch for this week:

Asian Data

• Early South Korea trade figures for March showed surprising resilience in exports before the full brunt of the coronavirus hit. Shipments during the first 20 days of the month rose 10% from a year earlier, the Korea Customs Service said Monday. The period had an extra 1.5 working days compared with 2019. Without that, the result would have been about flat
• The Bank of Thailand’s meeting on Wednesday is unlikely to result in further rate action after an emergency cut on Friday and the announcement of a $31 billion facility on Sunday to stabilize the local fixed-income market
• Malaysia reports inflation figures on Wednesday
• The Philippines budget balance is due on Friday
• China reports February industrial profits and final current-account numbers for the fourth quarter on Friday

Moody’s on South Africa

• South Africa could lose its last investment-grade credit rating as Moody’s Investor Service is scheduled to release an assessment on Friday. If so, that could lead to heavy outflows, battering the rand even further. Moody’s changed the outlook on the country’s rating to negative in November

Hungary, Nigeria Rates

• Hungary, Nigeria, Kenya and Angola are all scheduled to make rate decisions this week
• Hungary’s central bank is set to join regional peers in loosening financing conditions at a meeting on Tuesday, according to a Bloomberg survey of analysts. They are are divided on whether the measures will include outright rate reductions, or unconventional moves such as bond purchases
• Also Tuesday, Nigeria’s central bank is seen cutting its policy rate by 50 basis points to 13%, as it tries to strike a balance between supporting the economy and bolstering a currency under pressure from the plunge in oil prices. Last Friday, the central bank effectively devalued the naira by weakening the rate at which foreign portfolio investors can exit the country
• Two of four analysts surveyed by Bloomberg forecast that Kenya will hold its main rate at 8.25% on Monday, while the other two see cuts of either 25 or 50 basis points. The economy’s already under pressure from Europe’s lockdown, with flower exporters having to destroy roses because of falling demand. But the currency also depreciated to a record low last week, which may make the central bank cautious about easing
• Angola, Africa’s biggest oil producer after Nigeria, is set to make a rate decision on Friday
• Lebanon, which defaulted on a $1.2 billion Eurobond this month, said it would make a presentation to bondholders on Friday to kick-start restructuring talks

Colombian Cut

• The minutes of Brazil’s central bank meeting on March 18, when it cut the key rate to a record-low 3.75%, will be released on Monday. They may help explain policy makers’ hawkish tone amid the unprecedented global sell-off. A quarterly inflation report will serve up technical assessments and should address any shifts in thinking from policy makers
• Colombia’s central bank makes a rate decision on Friday, with analysts expecting a cut of 25 basis points to 4%. The peso is one of the world’s worst-performing currencies this month
• LATAM WEEK AHEAD: Mexico, Colombia Policy Rates; Brazil Data

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