04.13.20 - Whether or not emerging markets extend across-the-board gains will largely depend on institutions such as the IMF (International Monetary Fund). The coronavirus has hit the global economy hard as large regions have completely shut down outside of personnel that have been labeled essential by local officials. Even if the IMF were to offer a lifeline to emerging markets in what has been described as one of the largest global crises in the post-war period, there still are manifold risks.
“While we expect a recovery of flows to emerging markets in the second half of 2020, we do not believe that the pickup will be strong enough to bring about a return to 2019 levels,” an economists at the Washington-based Institute of International Finance stated “We expect many countries to turn to multilateral support in coming months due to external financing stress and a lack of policy space to support their economies.”
Leaders of countries such as Ethiopia have stated the urgent need for Africa to receive fiscal stimulus of around $100 billion. This is on top of the $50 billion the IMF has already pledged to assist the continent in fighting the current crisis.
Emerging-market stocks and local-currency bonds soared to their best weekly performance in four years recently, while developing-nation currencies had their largest weekly jump since June. The U.S. Federal Reserve assisted greatly in announcing $2.3 trillion of extra liquidity on Thursday.
Nevertheless, the potential of futile stimulus efforts, debt defaults, and an increasing infection rate in very vulnerable countries and regions leaves many still timid and pessimistic.