No reprieve for emerging markets with rout in virus-hit China

Fresh from their worst month since August, emerging-market stocks and currencies are headed for more tumult as investors weigh the economic shocks from the coronavirus outbreak.

China’s yuan and stocks plunged on Monday, while bonds gained as onshore financial markets reopened for the first time since January 23 after the extended Lunar New Year holidays. The nation’s central bank sought to soften the selloff through injections of liquidity into the money market and cutting borrowing rates.

A sense of foreboding is spreading through emerging markets on concern that the virus, which has killed more than 360 people and sickened thousands, could crimp global growth. MSCI Inc.’s index of developing-nation equities sank below its 50- and 100-day moving averages last week, heralding further declines from a 1 1/2-year peak reached in mid-January. The CBOE Emerging Markets ETF Volatility Index rose in January by the most since October 2018. JPMorgan Chase & Co.’s gauge of expected price swings in developing-nation currencies climbed Monday to the highest in almost two months.

“The coronavirus is an unquantifiable risk and precedents like SARS may not be that helpful because of China’s greater economic size, consumption share, and global integration compared to 2003,” said Hasnain Malik, the Dubai-based head of equity strategy at Tellimer. “Investors, particularly after a year of good returns, are naturally going to be very sensitive to worsening data on infection and deaths, regardless of stimulus measures for the economy.”

A slew of central-bank meetings in developing economies this week will likely offer clues on the potential impact of the virus on growth and monetary policy. Russia, Brazil and the Philippines will probably cut their benchmark interest rates.

© 2020 Bloomberg