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Alternative Market Briefing

EM markets-focused hedge funds wait for the pandemic storm to pass

Tuesday, April 07, 2020

Laxman Pai, Opalesque Asia:

EM markets were finally caught up by the selling pressure as the outbreak started to spread in several EM countries and as global liquidity concerns worsened, said Lyxor in its weekly brief.

While in aggregate EM assets return now level with DM's, dispersion is high. At a regional level, Latam assets suffered the most and across the board, while Asian assets' weakness concentrated in non-Chinese equities.

The bulk of the hit in MEA was in equities and FX, not in credit. EM performances reflect tremendous but uneven pressures on EM countries, which helped EM-focused strategies muddle through these troubled times.

The crisis is not over for EM countries

"The crisis is not over for EM countries, but we expect differentiation to intensify," Lyxor said.

First, as the pandemic is spreading worldwide, the growth in cases might only be at its beginning in MEA and Latam, while it seems past the peak in most of Asia ex-India. Health infrastructures and the ability to impose lockdowns also widely differ across countries.

Second, EM economies are unevenly leveraged to business cycles. Latam and CEE tend to be sensitive to activity in the U.S. and EMU, respectively. In contrast, Asia is both highly sensitive to Chinese activity - which is recovering - and to global trade - which is in free fall.

Third, the authorities' ability to stimulate their economies differ. Countries most sensitive to capital outflows and......................

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