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EM Review: Risk Assets Rose on Drug Optimism, Easing Lockdowns

EM Review: Risk Assets Rose on Drug Optimism, Easing Lockdowns

(Bloomberg) -- Emerging-market stocks just had their best month in four years amid optimism that scientists are making progress toward a drug to treat the coronavirus and as nations began to roll back lockdowns. Central banks are also playing a larger role, adding stimulus to counter the pandemic.

The following is a roundup of emerging-market news and highlights for the week through May 1.

Highlights:

  • Federal Reserve Chairman Jerome Powell said he was concerned the coronavirus crisis may leave permanent scars on the U.S. economy and that policy makers do more to limit the damage. The economy shrank at a 4.8% annualized pace in the first quarter, the first contraction since 2014
    • The Trump administration is organizing a Manhattan Project-style effort to cut the time needed to develop a coronavirus vaccine, with a goal of making enough doses for most Americans by year-end
    • Gilead Sciences Inc.’s antiviral drug has been cleared by U.S. regulators for emergency use in Covid-19 patients
  • The European Central Bank stepped up its response to the coronavirus crisis by cutting funding costs for banks, but refrained from boosting its bond-buying program and renewed its call on politicians to provide more fiscal support
  • President Trump said he thinks China is determined to see him lose the November election based on Beijing’s response to the pandemic
  • Bank of Japan said it’ll buy as many government bonds as it needs to and ramped up purchases of corporate debt, adding stimulus after the declaration of a nationwide state of emergency brought more shutdowns and heightened the need to support struggling businesses
  • Saudi Arabia’s central bank depleted its net foreign assets in March at the fastest clip since at least 2000, showing the severity of the damage inflicted by the slump in oil prices
    • The kingdom’s outlook was cut to negative from stable by Moody’s Investors Service, which projects the fiscal deficit will widen to more than 12% of gross domestic product in 2020
  • Brazil’s Supreme Court justice authorized federal prosecutors to open a probe into accusations that President Jair Bolsonaro tried to interfere in federal police investigations
  • Turkey’s defense of the lira sent central bank net international reserves to the lowest level since last May even after it borrowed a record amount of foreign exchange from local lenders
  • Hungary’s central bank will start potentially limitless asset purchases in the coming week, the final leg of plans to offset the economic carnage being wrought by the coronavirus
  • The Philippines raised $2.35 billion in a bond sale, becoming the latest emerging nation to pay up for funds as governments seek to shield their economies from the coronavirus pandemic
  • Trump said he knows the health status of North Korean leader Kim Jong Un and suggested the world would be hearing additional details “in the not too distant future,” but declined to elaborate further
  • South Africa was cut deeper into junk territory by S&P Global Ratings amid concern that Covid-19 will send the economy into a downturn
Asset Moves Last Week:Weekly
MSCI EM stocks index+4.3%
MSCI EM FX index+0.9%
Bloomberg Barclays Global EM Local Currency bond index+1.6%

Asia:

  • China will hold its highest-profile annual political meeting in late May, after it was postponed for the first time in decades as authorities worked to contain the coronavirus

    • China should maintain liquidity at a reasonably ample level and offer targeted support to companies hit by the coronavirus epidemic, central bank Governor Yi Gang said
    • The first official gauge for China’s economy in April showed the manufacturing sector moderated, indicating the recovery from a first-quarter slump will be prolonged as the coronavirus hits global demand
    • Profits of Chinese industrial firms fell as business activity struggled to recover from the aftermath of the coronavirus
    • Hong Kong’s de-facto central bank intervened again to defend the local dollar’s peg, after the currency returned to the strong end of its trading band
    • China is trying to build its way out of the coronavirus slump. Economists expect local governments to issue as much as 4 trillion yuan ($567 billion) in so-called special bonds this year, roughly twice last year’s total
  • Bank of Korea will provide $1.26 billion of 85-day loans to banks using the currency swap line with the Fed in its fifth auction
    • One BOK member called for cutting the policy rate to a lower effective bound and providing funds as much as necessary if the economic contraction worsens, according to minutes of the April 9 board meeting
    • Samsung Electronics warned earnings may decline this quarter after the coronavirus hurt demand for its smartphones and gadgets, trimming income gained from surging server-chip orders
  • India’s central bank opened a new credit facility for mutual funds to help investors avoid distressed sales of assets and calm concerns after Franklin Templeton shut six funds, citing a lack of liquidity
    • India’s budget deficit will probably breach its target as fiscal measures are key to combat the pandemic fallout, India’s central bank Governor Shaktikanta Das said
    • Reserve Bank of India bought chunks of debt just after the government sold it, fueling speculation the central bank is supporting the nation’s fund-raising efforts
  • Indonesia’s sovereign bond yields are still too high, the central bank governor said after the monetary authority bought debt directly at a government auction to support the country’s fund-raising efforts

    • The nation sold $4.1 billion of sovereign bonds to local banks in a private placement as it accelerated efforts to bridge a widening fiscal deficit sparked by billions of dollars in stimulus to counter the coronavirus pandemic
    • The country will pay $1.4 billion in direct cash assistance to millions left jobless in villages amid the virus
  • Thailand is set to extend its state of emergency to May 31 to cement progress against the coronavirus, while also making preparations to restart businesses nationwide
    • The country will begin easing its emergency virus lockdown curbs on May 3 to allow some businesses to restart operations, according to a spokesman for Thailand’s Covid-19 center
    • Thailand’s visitor numbers are set to tumble 60% to 16 million this year, almost halving foreign tourism income, but those numbers could go even lower, according to the Tourism Authority of Thailand
    • Thailand plans to pay 10 million farming households a cash handout of 15,000 baht ($460) at a total cost of $4.6 billion in an effort to mitigate the pandemic’s impact
  • President Rodrigo Duterte may gradually reopen the Philippine economy after a lockdown on key economic centers ends in mid-May
    • The Philippines has “a lot of elbow room” to borrow domestically, Finance Secretary Carlos Dominguez said a day after raising $2.35 billion from a dollar bond sale
  • The top U.S. health official spoke to his Taiwanese counterpart about fighting the coronavirus, a rare Cabinet-level contact between the two governments that’s certain to anger Beijing
    • Taiwan’s GDP grew 1.54% in the first quarter

EMEA:

  • Russia’s plan to almost double local-bond issuance got a boost after borrowing costs plunged to near a record low
    • Russia auctioned the most ruble bonds since April 2019 as investors locked in yields with more monetary easing expected and before a break in sales due to holidays
    • President Vladimir Putin ordered Russians to remain under lockdown through May 11 after the total number of coronavirus cases in the country surpassed China’s
  • Turkish President Recep Tayyip Erdogan continued his charm offensive on President Trump, with a letter praising his virus measures and calling for stronger collaboration
  • Poland’s state-development fund sold 16.3 billion zloty ($3.9 billion) of bonds, initiating another source of funding for a support program aiding businesses hurt by the coronavirus lockdown
  • Turkey’s central bank cut its year-end inflation estimate to 7.4%
    • The lira slipped past a psychological level of 7 per dollar, extending its third weekly loss
  • Dubai is in talks to raise billions of dollars of debt privately instead of following its neighbors by tapping public markets, as the emirate looks to mitigate the economic fallout of the coronavirus pandemic

    • The emirate hopes to reopen for tourists in early July, after halting most arrivals to contain the coronavirus
  • Lebanese central bank Governor Riad Salameh said the currency peg remains viable as he pushed back against the onslaught of criticism for his handling of the crisis gripping the economy
  • Egypt has asked the International Monetary Fund for financial assistance to shore up investor confidence in the economy as authorities work to offset the impact of the coronavirus
  • South African Finance Minister Tito Mboweni said the economy could contract as much as 6.4% this year due to the coronavirus outbreak and the budget deficit may swell to more than 10% of GDP
    • South Africa’s airlines are appealing to the government for financial assistance and to allow operations to resume soon as measures to contain the virus pummel the sector
    • The nation plans to begin reopen schools in the coming week, allowing students to return in a phased approach in a continuing effort to contain the spread of the coronavirus
  • The IMF approved $3.4 billion in emergency funding to Nigeria, the biggest disbursement for any country yet with the pandemic
    • The Nigerian naira’s plunge in the unofficial foreign-exchange market is an indication the central bank may have to weaken the official rate further after the devaluation in March
    • Nigeria will relax its month-long lockdown of the country’s two main cities from May 4
  • Namibia’s central bank sees the economy shrinking 6.9% this year, which would be the biggest contraction since independence in 1991
  • African countries may seek to exchange their sovereign debt for new concessional paper to avoid using funds needed to battle the virus to pay private creditors, according to a United Nations body
  • Kenya’s central bank cut its benchmark rate for the fourth time in a row to cushion the economy from the virus fallout

Latin America:

  • Brazil’s Supreme Court justice suspended President Bolsonaro’s nomination of Alexandre Ramagem as the new chief of federal police
    • After getting an endorsement from Bolsonaro, Economy Minister Paulo Guedes said the private sector will drive the nation’s recovery, suggesting he is getting the upper hand in a struggle over the federal budget
    • Consumer prices fell, supporting bets on a rate cut
    • Brazilians are resuming a measure of normal life just as Covid-19 deaths are spiking to hundreds per day
  • Some of Argentina’s key creditors are rejecting invitations to speak with the nation’s finance team as both sides jockey for more favorable terms in a $65 billion debt restructuring
    • The Ad Hoc Creditor Group representing holders of Buenos Aires Province’s debt rejected the restructuring offer
  • Chile’s rating outlook was cut to negative by S&P as social unrest and the global economic downturn add to spending pressures
  • Mexico’s economy suffered its deepest contraction in over a decade during the first quarter, and the recession is expected to intensify
    • Some top hospitals in Mexico City are turning Covid-19 patients away as the capital becomes the nation’s epicenter; the president said there’s no shortage of beds
  • The IMF approved $650 million in emergency funding for the Dominican Republic to meet financing needs caused by the virus
  • Colombia cut borrowing costs to a six-year low after a slump in exports and business confidence gave early signs of the first recession since the 1990s
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With assistance from Bloomberg