(Bloomberg) –Emerging-market investors are starting the new week doubting that Friday’s rally will mark a turning point in what is now the fastest collapse in risk assets in more than a generation.
While governments increase efforts to slow the spread of the coronavirus, stimulus measures could be too late to prevent a global recession that will batter many of the world’s developing economies, with businesses suffering from both supply and demand shocks. As if to prove the point, most stock markets in the Gulf, including Saudi Arabia and Dubai, tumbled on Sunday even after rescue packages of almost $50 billion were announced at the weekend.
“Global markets are facing their gravest challenge since the Great Recession,” Andrew Sheets, Morgan Stanley’s London-based chief cross-asset strategist, said in a note on Sunday. “Low rates don’t solve a shortage of semiconductors if a factory needs to shut down. A tax cut won’t show up as spending if consumers don’t have confidence in the broader public health response.”
Emerging markets ended last week on a positive note, but it was small consolation. In the five days through Friday, MSCI Inc.’s index of developing-nation stocks crashed 12%, the most since the 2008 global financial crisis. The Mexican and Colombian pesos each depreciated more than 8% against the dollar to record lows, battered by Brent oil’s slide below $35 a barrel. Average sovereign dollar-bond spreads blew out by 122 basis points to levels not reached in more than a decade.
Asia Rates Bonanza
Indonesia, the Philippines and Taiwan are set to decide on interest rates. Those decisions will come just after the U.S. Federal Reserve’s policy meeting.Bangko Sentral ng Pilipinas and Bank Indonesia are expected to add to the global wave of easing, with Bloomberg Economics forecasting they will each deliver a 25 basis-point rate reductionThe collapse in oil prices will ease pressure on Indonesia’s current-account deficit and Philippine inflation, giving authorities room to lower ratesInvestors are betting that the Fed will reduce rates again, following its emergency cut earlier this month.