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Despite optimism that the U.S.-China trade-war truce will broadly hold, last week was a losing one for both stocks and currencies, while local bonds were little changed. And the list of uncertainties in the week ahead is likely to ensure caution remains in the driving seat.
China’s central bank said on the weekend it will resort to “more powerful” policies to counter the hit that the developing world’s biggest economy has suffered from the Covid-19 outbreak. As distressed-debt levels rise across emerging markets, South African President Cyril Ramaphosa called for African countries to be allowed a two-year moratorium to provide them with the fiscal space to fight the fallout from the pandemic.
“After an initial bounce in activity after the opening of lockdowns, several factors are likely to restrain the recovery: high debt, corporate defaults, inefficient labor markets, de-globalization and China-U.S. tensions,” David Hauner, a London-based strategist at Bank of America Corp (NYSE:BAC)., wrote in a report. “The experience with the opening up in China implies caution for risk appetite in the rest of emerging markets.”
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While a number of countries are moving toward easing restrictions, the impact of lockdowns is likely to weigh on markets for some time yet. China, Mexico and the Philippines reported economic contractions last quarter.
“The state of national lockdowns, securing new sovereign finance, disbursing announced stimulus and the full horror of disruption as seen through corporate results will continue to drive markets,” said Hasnain Malik, head of equity strategy at Tellimer in Dubai.
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