EM Review: Risk Assets Pummeled by Virus-Induced Economic Slump

(Bloomberg) -- Emerging-market stocks and currencies resumed losses last week as the relentless spread of the coronavirus fueled concern over the damage being done to the global economy. Record unemployment claims in the U.S. gave investors a sense of how big the impact will be as analysts slashed growth forecasts for emerging markets from Indonesia to Mexico. Oil prices rebounded, providing a brief relief for crude exporters.

The following is a roundup of emerging-market news and highlights for the week ending April 5.

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


  • Faced with projections that as many as 240,000 Americans will die from coronavirus, President Donald Trump largely abandoned his optimistic tone, telling the U.S. on Tuesday to brace for one of its toughest stretches as a nation
  • The Federal Reserve is acting as central banker to the world by seeking to provide the global financial system with the dollar liquidity it needs to avoid seizing up. In its latest measure to combat the economic fallout from the coronavirus, the Fed said Tuesday it was establishing a repurchase agreement facility to allow foreign central banks to swap any Treasury securities they hold for cash
  • The OPEC+ oil cartel is pressing to form a global coalition to cut output and stem the historic rout in crude prices
    • OPEC+ delayed a meeting aimed at ending the oil price war, as Riyadh and Moscow trade barbs about who’s to blame for the collapse in oil prices
  • U.S. employment plummeted last month by a degree not seen since the last recession and jobless claims soared to a record
  • China’s central bank cut the interest rate it charges on loans to banks by the most since 2015 as authorities ramp up their response to the coronavirus pandemic. Singapore’s central bank took unprecedented easing steps to support a trade-reliant economy by lowering the midpoint of the currency band and reduced the slope to zero
  • China is moving forward with plans to buy oil for its emergency reserves after a price crash, according to people with knowledge of the matter
  • Central banks from Seoul to Oslo have taken advantage of the Fed’s recently expanded foreign-exchange swap line facilities, although the Bank of Japan and European Central Bank continue to be the largest users of the facility
  • The White House and congressional Democrats are preparing for a fourth round of economic stimulus to get the U.S. through the coronavirus outbreak, even while they’re still arguing over the $2 trillion measure Trump signed
  • China concealed the extent of the coronavirus outbreak in the country, under-reporting total cases and deaths, the U.S. intelligence community concluded in a classified report, according to three U.S. officials. China rejected the claims
  • Asia’s factories contracted further in March as the coronavirus wreaked havoc on supply chains. China was the standout, with a private survey showing an improvement in manufacturing in line with the government’s official measure
  • Three of the biggest Arab economies buckled in March after transportation seized up and hundreds of thousands of businesses shut down to slow the spread of the coronavirus.
  • Saudi Arabia made good on its pledge to ramp up oil exports in April, with a first wave of crude already on its way toward Europe and the U.S., a sign the price war remains in full swing
    • Saudi Aramco delayed the release of its key monthly oil-pricing list until later this week as the kingdom trades barbs with Russia about an OPEC+ meeting aimed at ending the collapse in oil prices; President Trump ramped up threats to use tariffs to protect the U.S. energy industry from the historic glut of oil
  • Qatar hired banks to raise more than $5 billion in bonds as early as this week, according to people with knowledge of the matter
  • Israel sold the first-ever century bond from a Middle Eastern government as part of a $5 billion deal, taking advantage of the plunge in global borrowing costs over the past year; shortly before that, it raised 700 million euros in the private-placement market
  • Zambia’s Eurobonds extended losses and its currency tumbled after Africa’s second-biggest copper producer asked banks for proposals on reorganizing as much as $11.2 billion of foreign debt, including $3 billion of Eurobonds
  • Egypt held interest rates on Thursday, counting on last month’s record cut being enough to support the economy without exposing its debt to an emerging-market sell-off
  • Chile’s central bank cut borrowing costs to 0.5%, expanded a bank-bond purchase program by $4 billion and extended it to all maturities as it expects the economy to face the biggest recession since the early 1980s
  • India banned all exports of hydroxychloroquine, a malaria drug that President Donald Trump has repeatedly touted as a “game changer” in the fight against Covid-19
Asset MovesWeeklyMarch
MSCI EM stocks index-1.3%-15.6%
MSCI EM currency index-0.9%-3.5%
Bloomberg Barclays Global EM Local Currency bond index-1.3%-4.7%


  • Chinese manufacturing activity rebounded in March, signaling the economy is restarting just as it faces a growing threat from slumping external demand
    • China’s cabinet said the central bank should enact further cash injections and local authorities should issue more infrastructure bonds, as the country ramps up its efforts to support the economy
    • China’s share in MSCI Inc.’s index of developing-nation stocks rose 6 percentage points in the past quarter to a record 36.5%. The country’s weighting in a Bloomberg Barclays gauge of local-currency debt has increased to 34.9%, also an all-time high. Chinese stocks and bonds were the best performers in both measures in the period
    • Investor credit at China’s brokerages is disappearing at the fastest pace in 10 months as a bleak earnings outlook prompts the country’s investors to conserve cash
    • The PBOC cut the reserve ratio for smaller banks by one percentage point, which will be done in two phases
  • Officials from leading Southeast Asian central banks have agreed to coordinate efforts to boost their economies, all struggling under the blow from the coronavirus
  • Bank of Korea’s loan offer of $12 billion using the currency swap line with the Fed drew demand of only $8.7 billion from local banks
    • Just two weeks after South Korea adopted one extra budget, President Moon Jae-in said another is being planned to help insulate households against the impact of the coronavirus
    • South Korea’s exports fell after a brief recovery as the coronavirus hit supply chains and suppressed global demand
  • India opened up a wide swath of its sovereign bond market to overseas investors, taking its biggest step yet to secure access to global indexes as the government embarks on a record borrowing plan
    • Limit for foreign portfolio investments in corporate bonds was increased to 15% of the outstanding stock for fiscal year starting April 1
    • India reduced trading hours in its bonds and currency markets as it battles rising volatility amid thin volumes with traders forced to work from home
    • The World Bank has offered $1 billion in emergency financing to help India increase its screening, contact tracing, and laboratory diagnostics to fight the coronavirus outbreak
  • Indonesia slashed its growth forecast by more than half as the coronavirus takes a toll on the economy, prompting the government to adopt a series of emergency measures
    • Indonesia unveiled a string of emergency measures, including corporate tax cuts and a temporary removal of the budget-deficit cap, as the government steps up efforts to head off an economic crisis caused by the coronavirus
    • Bank Indonesia predicted the rupiah will strengthen to 15,000 per dollar by year-end, Governor Perry Warjiyo said on Thursday. Finance Minister Sri Mulyani Indrawati said the rupiah might slide to 20,000 under a worst-case scenario
    • Indonesia barred foreign nationals from entering the country as the country stepped up efforts to contain the spread of the coronavirus
    • Bank Indonesia will be allowed to buy sovereign bonds in the primary market and extend a lifeline to banks in the event of insolvency
  • Malaysia’s economy may shrink this year as it struggles with a month-long coronavirus lockdown and a slide in commodity prices. Gross domestic product could shrink as much as 2% this year or grow as much as 0.5%, Malaysia’s central bank said

    • Malaysia is imposing limits on the hours of operation for restaurants, taxi services and some shops as the country steps up restrictions in a lockdown
  • Thailand unveiled plans for fresh government stimulus as well as rule changes to improve monetary policy flexibility, stepping up efforts to cushion the blow from the novel coronavirus outbreak
    • Phuket in Thailand is on lockdown, with most transportation to the island banned, in the latest effort to contain the spread of the coronavirus in the tourist destination
    • Thai Prime Minister Prayuth Chan-Ocha intensified the country’s fight against the coronavirus by ordering a nationwide curfew following a surge in infections
    • Bank of Thailand’s widening liquidity backstop for the fixed-income mutual fund sector is calming investors after panic selling led to the closing of some portfolios
    • Bank of Thailand and Bank of Japan signed a bilateral local currency swap pact to allow exchanges between the two central banks of up to 800b yen ($7.4b)
  • Philippine President Rodrigo Duterte gave authorities the green light to shoot dead protesters who attempt to riot or disrupt food distribution during a lockdown prompted by the Covid-19 outbreak
    • Philippines is crafting a stimulus package as it weighs extending a month-long lockdown in the main island of Luzon to curb the coronavirus
    • Philippines rejected all bids for Treasury bills for a second week as banks sought higher returns, showing the challenges in raising funds amid the economic risks posed by the coronavirus
    • Philippines doesn’t need to sell foreign-currency bond at this time after getting a 300 billion-peso lifeline from the central bank, Treasurer Rosalia de Leon said
  • Taiwan’s cabinet plans to add NT$250 billion ($8.3 billion) to the NT$100 billion already in its special budget to cope with the coronavirus impact, according to a cabinet statement

    • Taiwan rejected the World Health Organization’s claims it has worked with the island in combating the global coronavirus outbreak, adding fresh criticism of the organization’s handling of the epidemic
  • Sri Lanka’s central bank cut its benchmark lending rate to the lowest since at least 2003


  • Turkey’s President Recep Tayyip Erdogan is seeking access to the U.S. Fed’s dollar swap lines to bolster its coronavirus-hit economy, after the central bank ran down its foreign-currency buffer to prop up the lira this year

    • Turkey’s central bank added to its emergency program to help contain the economic fallout from the coronavirus as the country’s number of confirmed cases surged 25% and the death toll climbed
  • A deluge of economic sanctions and the threat of more to come has pushed Russia’s authorities to boost reserves and strip back debt over the past five years. As governments across the globe prepare for what’s set to be the worst economic slump since 2008, the fortress approach that had been pushing Russia’s economy into stagnation is starting to look like good foresight
    • Russia is planning for oil prices at $20 a barrel this year and will ramp up borrowing in rubles to make up for a budget shortfall
  • Poland needs to increase this year’s issuance plan by about 70% to finance its anti-crisis stimulus, less than some analysts feared
  • Hungary’s central bank moved to arrest a record slide in the country’s currency, pivoting away from its looser monetary policy bias as the effects of the coronavirus hammer the economy

    • Hungary’s parliament handed Prime Minister Viktor Orban the right to rule by decree indefinitely, effectively putting the European Union democracy under his sole command for as long as he sees fit
    • Hungary’s government pledged to slash funding for political parties and hike taxes on banks in its first major budget overhaul since Prime Minister Viktor Orban secured powers to rule by decree this week
  • Czech government set a record for the size of a domestic bond sale in a sign of investors’ confidence in the country’s debt even after the central bank curbed speculation that it was about to start asset purchases
  • Isolation measures imposed to staunch the spread of the coronavirus thrust central European manufacturing, the region’s main growth engine, into the deepest declines since at least the global economic crisis
  • Moody’s Investors Service singled out Kuwait and Oman for potential downgrades, focusing on the credit ratings of two nations at opposite ends of the economic spectrum as the combined shock of collapsing oil prices and the coronavirus pandemic stretches their finances
  • Saudi Aramco, the world’s largest oil producer, is weighing the sale of a stake in its pipeline unit to raise money amid a slump in crude prices, according to people familiar
  • Collateral damage from the implosion of NMC Health Plc is piling up
    • UAE Exchange, set up by the founder of the embattled hospital operator, defaulted on a loan of about $300 million to a group that includes Goldman Sachs Group Inc. and JPMorgan Chase & Co., according to people familiar. Abu Dhabi Commercial Bank PJSC hired Lazard Ltd. to advise on its more than $1 billion of exposure to the Abu Dhabi-based company
  • The U.A.E. central bank said required reserves for demand deposits will be cut by half, unlocking about 61 billion dirhams ($16.6 billion) that can be used to support lending to the economy and banks’ liquidity management
  • Dubai’s deputy ruler Sheikh Hamdan bin Rashid Al Maktoum said the state will grant unspecified financial aid to Emirates airline, and that the government is committed to providing the full support by injecting fresh capital
  • Organizers of Expo 2020 Dubai are recommending a one-year delay to the exhibition, the latest global event that looks set to be claimed by the coronavirus pandemic

    • The widening pandemic could see Dubai property prices falling to levels last seen 10 years ago, according to S&P Global Ratings
  • Fitch downgraded South Africa further into junk territory on Friday, a week after Moody’s removed the nation’s last investment-grade rating
    • South Africa’s revenue collection came close to the budget estimate even as the economy’s slump deepens. The South African Revenue Service took in 1.356 trillion rand ($73 billion) tax in the 2019-20 fiscal year, an increase of 5.3% from the previous year
    • Sentiment in South Africa’s manufacturing industry had the worst quarter in 11 years, and it’s expected to deteriorate even further due to a nationwide lockdown to limit the spread of the coronavirus
    • South Africa recorded its biggest trade surplus in 14 months in February as exports to Europe surged
    • Credit ratings of South Africa’s five largest banks were downgraded deeper into junk by Fitch Ratings, which cited a deteriorating operating environment following the coronavirus outbreak
  • Ghana’s Finance Minister Ken Ofori-Atta cut the country’s growth forecast for 2020 to the lowest in 37 years due to the collapse in oil prices and the impact of the coronavirus
  • Nigeria’s currency depreciated to its weakest level since February 2017 in the black market after the central bank cut supply to dealers
  • Kazakhstan slashed its key rate at an unscheduled meeting in a reversal of its March policy to complement a government stimulus plan after much of the nation was put on a coronavirus-related lockdown

Latin America:

  • Brazil’s President Jair Bolsonaro said his main concern “was always to save lives,” changing the tone from previous speeches, when he compared the virus to a “small flu”; his disapproval rating rose
    • Twitter, Facebook and Google’s YouTube have all removed posts shared by Bolsonaro for including coronavirus misinformation; the president said the anti-malaria prescription drug hydroxychloroquine was an effective treatment and encouraged the end of social distancing
    • Congress was set to vote on a bill that allows the government to spend more to fight the pandemic and also authorizes the central bank to trade private credit in the secondary market
    • Brazil suspended the release of jobs data as companies have been unable to provide complete information, and postponed for a month the quarterly publication of trade balance estimates for this year
    • Industrial production rose for the second month, supported by investment in capital goods before the coronavirus pandemic
  • Mexico President Andres Manuel Lopez Obrador said Sunday he’ll boost public works projects and low-interest loans to soften the blow from the coronavirus outbreak in a speech that was short on new announcements and broad stimulus measures. He had earlier rejected calls for fiscal stimulus, saying he won’t step in to aid the corporate sector, and does not agree with the Finance Ministry’s lower growth expectations

    • Mexico’s central bank announced a second dollar-denominated credit line auction using the swap line with the Fed, while the government abandoned its goal for a primary surplus to project a deficit of 0.4% of GDP
    • Fitch Ratings said it will discuss whether to cut Pemex further into junk territory at a review committee before the end of April
  • Argentine officials are at odds with overseas bondholders over a proposal for a four-year moratorium on payments to creditors, according to people with knowledge of the discussions
  • Ecuador extended the shutdown through April 12 as coronavirus cases swell
    • Petroecuador canceled a crude sale after receiving disappointing offers
    • Central bank carried out a one-month gold swap as a precaution against the decrease in foreign liquid assets in international reserves
  • Peru tightened quarantine rules and will allow men and women to leave home on alternate days only, with no one allowed on the streets on the next two Sundays
    • A majority of lawmakers in Peru’s congress support a bill to pull about $11 billion of private pension funds, a quarter of the total, while central bank President Julio Velarde said this will make it more difficult for the government to raise funds
  • Colombia was downgraded by Fitch Ratings to BBB-, just one notch above junk, due to a loss of fiscal credibility as well as slumping oil prices amid a weaker economic performance
  • The Covid-19 pandemic pushed Moody’s Investors Service to downgrade Argentina, Ecuador and Zambia deeper into junk territory on Friday
  • Fitch downgraded Guatemala to BB- from BB stable on “diminishing fiscal flexibility due to the government’s low tax collection amid continuous political gridlock preventing forceful fiscal measures”
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