Relentless Decline Erases $600 Billion in Emerging Market Stocks

(Bloomberg) -- The flight from riskier assets in emerging markets threw up a procession of grim reminders, from the financial crash of 2008 to the taper tantrum of 2013.

The spread of the coronavirus outside of China threatened to stall global supply lines and slash economic growth, sending markets into a tailspin from India to Brazil.

The week ended as badly as it started, with Mexico reporting the second case of coronavirus in Latin America and Nigeria announcing the first infection in sub-Saharan Africa. The number of cases also soared in South Korea and Italy, with the rest of the world overtaking China for new infections for the first time. Now, investors are running scared the epidemic will spread across the U.S.

“This is the fastest market correction since 2008,” said Daniel Tenengauzer, head of markets strategy at Bank of New York Mellon Corp. in New York. The recovery shouldn't be so fast though, as economic activity remains fragile, he added.

Over the past week in emerging markets:

• The benchmark MSCI stock index fell by the most since September 2011
• Bond spreads widened by the biggest amount in two years
• Every single Latin American currency tumbled, even as the Russian ruble and the South African rand led global losses
• Developing-nation companies lost more than $600 billion of their market value, according to data compiled by Bloomberg

As if the looming threat of a global pandemic wasn't enough, Russian bombers killed 33 Turkish troops in Syria, stoking regional tensions and sending the lira tumbling.

Here are some of the biggest emerging-market losers of a week many traders will want to forget.

Russia

Russia's ruble and bonds hits levels last seen during a U.S. sanctions scare in 2018 and the collapse of crude prices at the beginning of 2016 as political tensions with Turkey added to the impact of the coronavirus.

The ruble was on track for the biggest weekly drop of any currency globally, its worst decline since a round of new U.S. sanctions against Russia in August 2018.

Yields on Russia's 10-year bonds are heading for a gain of 61 basis points in the week. That would be the sharpest spike since January 2016 when Brent tumbled to as low as $27.10 per barrel.

South Africa

South Africa's rand was the second worst performer in emerging markets over the week, dropping 4.3% and extending its worst start to the year since 2008. The currency declined as a ballooning budget deficit and a warning from Moody's about the fiscal risk added to global negative sentiment.

The nation's benchmark stock index slid 4.5% on Friday, extending its decline since Monday to almost 11% and setting it on course for the worst week since August 1998, the year Russia's debt default sent global markets into a tailspin.

Turkey

The last time Turkish equities had a jolt this violent was in the midst of the so-called taper tantrum, when the prospect of the higher U.S. borrowing costs and a smaller Federal Reserve balance sheet sent emerging markets plunging.

The Borsa Istanbul 100 Index slumped 10% at the open Friday, its biggest intraday drop in almost seven years as tensions between Ankara and Moscow soared after an attack on Thursday killed at least 33 Turkish troops in Syria. The index pared some its decline and closed 4% lower on the day.

India

India's equity benchmark plunged 7% this week, the worst showing in Prime Minister Narendra Modi's almost six years in office. The last time the Sensex fell this much was in July 2009 when a farm crisis was worsened by poor monsoon predictions.

The gauge posted similar losses several times during the 2008 financial crisis.

Poland

Eastern European stock markets were the worst performers in the emerging-market world. Poland's benchmark WIG20 Index tumbled 15.3%, the most since the 2008 global financial crisis, even as the country reported better-than-expected economic growth data.

Investors are betting the fallout from the disease will exacerbate the slowdown in Poland's economy.

Lebanon and Argentina

Notes from Lebanon and Argentina posted the first- and third-largest declines as investors dumped bonds amid talks to restructure their debt. Their average spreads widened 929 and 140 basis points, respectively, according to JPMorgan indexes.

Ecuador

Ecuador debt was the second worst performing, with the average spread of its sovereign notes jumping 248 basis points. The nation's bonds have been falling since the beginning of the year but the sell-off reached a whole new level this week after the Finance Minister said they are looking for a debt re-profiling -- a statement that was later denied by the ministry. Given the uncertainty, Citi said it's better to sell the bonds.

Latin America

Not a single currency in Latin America eked out a gain as Brazil and Mexico reported their first cases of coronavirus, fueling concern over the impact to economies that are already struggling to expand.

The Brazilian real fell to a record low despite two interventions from the central bank, which sold $1.5 billion in foreign-exchange swaps. The nation's hot stocks market plunged over 10% in less than three days as markets were closed for the Carnival holiday early in the week. The Ibovespa index dipped below the 100,000 key psychological level and entered oversold territory.

The Colombian peso also weakened to a record as it fell the most since November 2015, dragged lower by tumbling oil prices. The Chilean peso weakened despite central bank intervention and the Mexican currency reached the lowest since October.

--With assistance from Srinivasan Sivabalan, Áine Quinn, Constantine Courcoulas, Robert Brand and Alex Nicholson.

To contact the reporter on this story: Aline Oyamada in Sao Paulo at aoyamada3@bloomberg.net

To contact the editors responsible for this story: Carolina Wilson at cwilson166@bloomberg.net, Philip Sanders

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