April 3, 2020 / 8:22 AM / 2 months ago

EMERGING MARKETS-Stocks, FX down as surging COVID-19 spells disaster for global growth

* Turkish lira, S.African rand down 1%

* Decreasing FX reserves a worry in Russia, Turkey

* Oil prices rise, but doubts remain on Russia-Saudi deal

* Most battered EM FX to pare losses in a year - Reuters poll

By Susan Mathew

April 3 (Reuters) - Emerging market stocks and most currencies slipped on Friday as the number of global coronavirus cases exceeded 1 million, while doubts about a U.S.-brokered deal between Russia and Saudi Arabia regarding oil prices also lingered.

On course to end their third in week in four in the red, MSCI’s index of emerging market shares fell 0.5%, while its currency counterpart traded flat.

Most Asian currencies made muted moves against a stronger dollar, while the Turkish lira and South Africa’s rand both lost 1%. Most central and eastern currencies traded lower against a weaker euro.

Surging numbers of infections signal a prolonged period of significantly subdued economic activity as more containment measures may be required to curb the virus.

Recent economic indicators around the globe have already made a sharp turn lower.

“The medium to long term effects of the current crisis are so difficult to gauge and in the end the central banks are flying blind as far as forecasts are concerned,” said Commerzbank analyst Antje Praefcke.

“Global recession fears are terrifying the markets - presumably without much differentiation between the countries.”

EM currencies have made hefty losses so far this year as investors rush to safer assets, pushing many such as the rand and most Latin American currencies to all-time lows.

Russia’s rouble, sensitive to oil prices, shed early losses to trade firmer as crude edged up. Oil prices had tanked after a surge overnight when U.S. President Donald Trump said Russia and Saudi Arabia had agreed to output cuts. But the ambiguity regarding the amount of cuts saw analysts cast a sceptical eye on the deal.

Russia’s central bank said it will continue selling foreign currency from state reserves on a daily basis in April. The bank has sold a little more than $2 billion worth of foreign currency since March - a cause of worry as analysts warn of depleting reserves.

Amid similar worries in Turkey, the lira weakened with the number of daily rise in coronavirus cases in late double digits. While spending and trade data make the case for a second recession in less than two years for Turkey, some respite came as data on Friday showed inflation dipped below 12%.

While recent measures by the U.S. Federal Reserve to ease the dollar crunch offers some relief, the outlook for developing market currencies remains glum without a tangible improvement in investment and trade flows. If the pandemic subsides, strategists in a Reuters poll see some EM currencies paring losses only by this time next year.

For GRAPHIC on emerging market FX performance 2020, see tmsnrt.rs/2egbfVh

For GRAPHIC on MSCI emerging index performance 2020, see tmsnrt.rs/2OusNdX

For TOP NEWS across emerging markets

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see (Reporting by Susan Mathew in Bengaluru; Editing by Andrew Cawthorne)

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