Moves by guardians of global economy key to fate of emerging markets’ rally
Whether emerging markets extend last week’s across-theboard gains will likely depend on what the so-called guardians of the global economy do to save them from the worst of the coronavirus.
But even if the International Monetary Fund and Group-of-20 offer help this week to address what former IMF chief economist, Maury Obstfeld, described as the greatest global crisis of the postwar period, the risks to the rally are manifold. traders are bracing for one of the worst first-quarter earnings seasons in living memory as well as data showing a slump in Chinese economic output.
“While we expect a recovery of flows to emerging markets in the second half of 2020, we do not believe that the pickup will be strong enough to bring about a return to 2019 levels,” economists at the Washington-based Institute of International Finance, including robin Brooks and elina ribakova, wrote in a note.“we expect many countries to turn to multilateral support in coming months due to external financing stress and a lack of policy space to support their economies.”
ethiopia’s Prime Minister Abiy Ahmed said in a Bloomberg Opinion piece that Africa needs emergency fiscal stimulus worth $100 billion, in addition to the IMF’S already planned $50 billion of regular support, to tackle the Covid-19 crisis.
the weekend’s OPEC+ agreement has been a source of some solace in Asia trading, although the bounce so far in oil prices has been modest. China’s consensus-smashing money supply and credit numbers over the weekend, are also somewhat encouraging as the numbers indicate that the authorities are prepared to use sizable non-price or quantitative tools despite a relatively meager rate-cut response.
emerging-market stocks and localcurrency bonds had their best weekly performance in four years in the five days through Friday, while developing-nation currencies had their biggest weekly gain since June. the US Federal reserve helped by announcing an extra $2.3 trillion of liquidity on thursday.
Still, the prospect of debt defaults, unsustainable stimulus efforts and unbridled infection rates in the world’s most vulnerable economies has left many investors on the sidelines. emerging-market equity funds recorded their eighth consecutive weekly outflow in early April despite attractive valuations, according to epfr Global.
Indonesia’s central bank meets on tuesday, and the consensus is there will be a further 25 basis-point rate cut. however, if the rupiah remains under pressure, the decision to loosen policy may be deferred.
the reserve Bank of India is scheduled to release on Monday the minutes for its emergency meeting on March 27. the monetary authority reduced the benchmark repurchase rate by 75 basis points to 4.40 percent and announced steps to boost liquidity in a stimulus worth 3.2 percent of gross domestic product. Bloomberg News