The theme this week has been sharp falling knives from the sky as Emerging Market (EM) asset sell-off pressure steepens. All this is in the wake of a thickening corona pandemic that has caused panic in the financial markets sending stocks to their knees. Wall street and Asian stock futures rocked their lowest this week with US stocks down over 10% as Asia gyrated between 8%-12% in losses. EM currencies exposed to commodities have stretched losses significantly YTD. See Bloomberg currency ranker below for YTD performance for EM currencies.
Zambian Kwacha and SA Rand lead the loss streak. African currencies have not been spared especially those exposed to crude post the oil price cash on Monday that saw the largest one day slump of 25% sending international ICE Brent to $33/bbl. and West Texan Intermediate (WTI) on the NYMEX to $30.3/bbl. This commodity price slide contagion spread to base metals suppressing copper on the London Metal Exchange (LME) to 3 year lows trading for $5,343 per metric ton as Zinc, Aluminium, Tin and Lead tracked losses in both London and Asian trade. Metal traders drew comfort from hopes that more global central banks would inject liquidity stimulus to boost confidence. The South African Rand led the loss streak , with the Kwacha rallying behind with the Botswana Pula and Mozambique Metical. Most African currencies remain in red save the Ghanaian Cedi and Egyptian Pound that posted gains. See Bloomberg currency ranker table below:
A blow out in Eurobond spreads. Dollar bond yields across emerging and frontier markets were at highs never seen in history. Loss leaders were those exposed to copper and crude oil as prices were deeply suppressed.
Zambia’s dollar bonds led the credit spread blow out between between 2,500 – 4,200 basis points above 10year US treasuries in the week pricing (in bid/ask) its 2022’s at 44.379%/41.460% while the 2024’s widened to 37.386%/34.342% and 2027’s to 26.587%/25.395%. This jump in credit default spreads reflected a suppressed red metal price and general weak global sentiment. Other emerging market dollar bonds that took a cue from the stock and commodity market crash were Angola’s 2025’s whose yields spiked to 21.746%/20.887%, Gabon’s 2024’s and 2025’s to 12.290%/11.902% and 14.405%/13.207% respectively. Nigeria’s 2021’s,2023’s and 2025’s widened similarly to 11.025%/8.685%, 12.019%/10.871% and 10.893%/10.267% respectively.
Global outlook remains feeble until the coronavirus infection rates subside. Countries are still recording increasing cases which still causes jitteriness across markets with very feeble growth momentum.
The Kwacha Arbitrageur
