Emerging-Market Stocks Sink Most Since ‘08 as Virus Wreaks Havoc

• The MSCI Emerging Markets Index of equities fell 6.6%
• Stock benchmarks from Brazil to Poland and Thailand tumbled more than 10%
• A measure of currencies dropped by the most in almost four years; the Russian ruble slid for a sixth day while the Mexican peso, Chilean peso and Brazilian real tested record lows
• Sovereign credit spreads widened 57 basis points, according to JPMorgan indexes, as bond yields spiked in Ecuador, Argentina and Ukraine

The spread of the coronavirus, which the World Heath Organization has declared a pandemic, has roiled markets even as central banks lower interest rates and governments announce fiscal stimulus measures. Equities pared declines Thursday afternoon after the Federal Reserve expanded plans to buy government bonds and alleviate “temporary disruptions” in financing markets. Earlier, the European Central Bank boosted quantitative easing.

Developing-nation stocks had already lost $1 trillion in value this week before Thursday’s sell-off.

“Emerging markets continue to face powerful crosswinds,” said Dariusz Kowalczyk, a strategist at Credit Agricole SA.

Developing-nation bonds weren’t spared. The yield on Ecuador’s sovereign dollar bonds due in 2026 spiked to an all-time high of 34%, while notes from Argentina and Ukraine also suffered.

The list of stock bear markets is growing amid concern the virus will derail global growth and cut corporate earnings. Stock indexes in Thailand and the Philippines both had their biggest declines in more than a decade, while Brazil’s benchmark equity gauge had its worst two-day drop since 1992.

“Macroeconomic data in the next couple of months is likely to be negatively impacted by the coronavirus,” said Suresh Tantia, a senior investment strategist at Credit Suisse Group AG in Singapore. “This could also lead to lower earnings expectations for MSCI EM.”

Some investors are saying the correction provides opportunities to scoop up beaten-down stocks.

GAM Investments sees opportunities across consumer discretionary, technology, non-bank financials, renewables and health care in the Chinese equity market. The sharp drop in new China infections and robust policy responses, including that of the Federal Reserve, are supportive, said Rob Mumford, a Hong Kong-based investment manager for emerging-market equities.

“For medium- to long-term investors, the risk-reward trade-off in equities is much better,” said Guillermo Felices, the head of research and strategy for multiasset quant solutions at BNP Paribas Asset Management in London. The company bought emerging-market shares as well as U.S. equities in early February and is open to adding to positions, he said.

Source: Bloomberg Business News