Coronavirus fears cast pall over emerging market stocks, mainland China shares gain
JOHANNESBURG - Emerging market stocks extended losses on concerns about a jump in new coronavirus cases outside China though a move to trim South Africa’s budget deficit briefly lifted the rand.
The number of infections outside China, the source of the outbreak, for the first time surpassed those appearing inside the country.
MSCI’s index of emerging market stocks fell 0.4% to fresh 12-week lows. But gains is mainland China stocks capped losses as China reported its slowest daily increase in coronavirus deaths in almost a month although the number of new cases continued to rise.
“Until recently, the most likely scenario appeared to be that the virus would mainly affect China’s economy, and that, most of the loss would be made up over coming quarters,” said Jonas Goltermann, senior markets economist at Capital Economics.
“But the continued heavy restrictions within China and the spread of the virus across the globe challenges the assumption that the outbreak will blow over with only limited damage.”
Shares in Turkey, South Africa Russia , Poland all lost more than 0.8%, while Budapest-listed shares gave up 0.4%.
South Korean and Taiwan shares lost more than 1% - among the steepest declines in the emerging market universe.
South Korea’s won traded steady, giving up early gains on the central bank’s surprise decision to hold interest rates. Expectations of a rate cut at Thursday’s meeting had risen after the rapid rise in the number of infected cases in the country this month.
As tensions in Syria continued, Turkey’s lira trade flat having hit its lowest since May 2019, while Russia’s rouble lost 0.4% against a weak dollar and 1% against a strong euro.
South Africa’s rand firmed as much as 0.7% before trading lower after Finance Minister Tito Mboweni moved to cut its public sector wage bill to contain a rising deficit, much to the chagrin of unions that have protested against changes to wages.
Some analysts hope this will be enough to avert a ratings downgrade from Moody’s, the last rating agency to hold an investment grade on South Africa, but others remain sceptical.
“Important issues such as the restructuring of the debt-laden state-owned companies, above all the electricity supplier (Eskom), were not addressed sufficiently in our view,” said Elisabeth Andreae, an FX and EM analyst at Commerzbank.
“Until counter measures are taken, many precious resources will be wasted in this area. A consolidation of the eroded national finances is still not in sight,” which may still prompt Moody’s to downgrade to “junk” in March, she said.
A downgrade to junk would result in an exodus of bondholders who are mandated to hold investment grade-rated debt, further pressuring the country’s finances.