Some emerging markets advance post-lockdowns, others trail

Dubai: As economies worldwide reopen post-lockdowns, the recovery is seen as increasingly uneven in emerging markets as rising number of new coronavirus infections hurt growth for some, while few others fare better than expected.

“While the incoming economic data continue to point to a nascent recovery in aggregate emerging markets activity, some countries are being left behind,” wrote Edward Glossop, Emerging Markets Economist at Capital Economics.

“Recent figures from parts of Asia (China, Korea, Vietnam and Taiwan) and Emerging Europe (notably Poland), where coronavirus outbreaks have been brought under control, have been stronger we had than expected,” Glossop added. “In contrast, activity is proving slower to recover in countries where new virus cases continue to rise sharply, such as India, Mexico and Chile.”

Gains cut short on emerging market indices

The MSCI index for emerging-market equities rose nearly 8 per cent so far this month on hopes that stimulus from central banks and governments globally could help economies swiftly recover from a pandemic-led slump. But the widely watched benchmark has been in decline the past week.

Meanwhile, MSCI’s index for Latin American stocks has continued to fall, falling 32 per cent this year, with the region emerging as a new global coronavirus hot spot and investors questioning the pace of any recovery. Researchers said the death toll from COVID-19 in Latin America is expected to rocket by October, with Brazil and Mexico seen accounting for two-thirds of fatalities.

“We remain concerned about the growth outlook in many emerging markets and developing economies,” opined Trieu Pham, Emerging Market Debt Strategist at ING Group. “Emerging markets are using limited fiscal resources compared to developed markets in its fight against COVID-19, and fiscal balance sheets in the regions are seeing a meaningful deterioration in 2020.”

Threat of a new wave of infections grow

Just as most of the developed world saw the number of cases peaking, and steadily declining, concerns among investors grew of a possible second wave of infections amid record increases in cases in several developing countries like India and Mexico, among others.

“Recent spikes in COVID-19 cases across the globe is putting the re-opening of emerging economies into question,” cautioned Hussein Sayed, chief market strategist at FXTM. “Whether we’re seeing a second wave or just a continuation of the first wave, the outbreak may reverse actions taken by governments to re-open their economies, hence curbing hopes of a smooth recovery.”

Another emerging market Russia is currently the third largest coronavirus hot spot in the world. Russia is part of a group of five major emerging markets known as the BRICS – the others being Brazil, India, China and South Africa. Among these, China is the only major economy now expected to grow in 2020.

Deep recessions seen in several emerging economies

Across emerging markets, the Philippines, Argentina, Colombia, Czech Republic, India, Malaysia, Mexico, Peru, South Africa and Thailand are economies that would experience deep recessions this year, the economists at Washington-based International Finance (IIF) wrote in a June 24 report.

“The public health crisis is far from over,” noted the IIF economists. “While some have been successful in bending the curve of infections, substantial restrictions remain in place in most, and the economic damage from lockdowns and travel bans will likely extend into the third quarter.”