What happened so far?
Emerging markets have been hit hard by the Covid-19 sell-off, suffering large outflows, more than in any crisis of the past 15 years*, and this despite not being as hard hit as developed countries with lower official death rates and less severe restrictions.
Policy support
In April, global markets enjoyed a stimulus-fuelled rally on evidence that the Covid-19 outbreak is getting contained. Emerging markets have also stabilised on growing evidence the pandemic’s impacts will be less severe, along with improving dollar liquidity averting a dollar squeeze/debt crisis so far.
Economic uncertainties persist
Although very early and difficult to assess and quantify the full impact of Covid-19, the second-order economic effects from lockdowns, shuttered tourist industries and weakened external and domestic demand are still a headwind for Emerging markets.
Big picture view
The current crisis is mostly reinforcing previous trends of slowing global growth, and dispersion of economic performance between countries. If liquidity injections, monetary and fiscal stimulus from advanced economies and a possible weaker dollar can provide further support to Emerging markets, medium-term outlook remains uncertain, therefore selectivity will remain key to navigate through this volatile and fragile environment.
Diverging conditions
A clear separation seems to be operating among Emerging countries:
The Chinese case