Joey Feste Discusses the Impact of COVID-19 on Emerging Markets

Coronavirus has brought everyone to their knees, from individuals to countries and economies. Strong market competitors are now facing the possibility of a global recession, and it brings to mind the emerging global markets and how they will respond to this pandemic. To outline how the coronavirus has and will impact emerging markets, we spoke to Senior Managing Partner at KM Capital Management, Joey Feste. With over thirty years of financial expertise, Joey Feste has an in-depth understanding of macroeconomics and how this crisis may impact emerging markets.

Joey Feste defines emerging markets as those countries that are striving to become advanced economies through increased production, development of regulatory bodies and exchanges, and increasingly sophisticated markets. Typically, emerging market economies have lower per capita income than developed countries, and often have liquidity in equity markets and see rapid growth as a result.

Emerging markets play a significant role in stimulating global economic growth. Joey Feste points out that over 80% of the world’s economy is comprised of emerging markets, including some of the largest countries in the world such as China, India, and Russia. While they often have a higher rate of growth compared to developed countries, they are often plagued by higher sociopolitical instability and volatility, making them particularly vulnerable to swings in commodities, other currencies, and the current pandemic. Some of the major emerging global markets are Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey, and United Arab Emirates.

Navigating a Global Pandemic

The global impact of COVID-19 has been staggering, especially for emerging economies. Joey Feste explains that stocks fell almost 15% half way through March, and is expected to fall even further as this pandemic develops. This is also having a major impact on the value of currency. Indonesia’s rupiah is heading toward a record low. The Mexican Peso has fallen more than 10% against the rampant dollar since March and the South Africa’s rand is at a historic low. The crisis has highlighted existing divisions between weaker and stronger economies, and certain countries are being hit harder than others.

South Korea

With a prompt and quick response to COVID-19, South Korea is faring well in the pandemic and has become an example for other countries to follow. South Korea’s trade figures for March showed surprising resilience in exports before the coronavirus hit. Leading the world in coronavirus testing has allowed the country to contain the outbreak without shutting down its entire economy. Of course, as a developed country, Joey Feste points out that South Korea has the resources, capacity, and infrastructure to support the containment of this virus, which is largely unavailable to emerging economies. In addition, China has been an unlikely stabilizer in emerging markets. China, the epicenter of the virus, and thus the first to suffer dramatic economic consequences, outperformed broader markets by more than 20 percentage points in the first quarter. Brazil, India, and South Africa, by comparison, are not prepared for what this global pandemic might bring.

Brazil

Brazil is the new epicenter of the pandemic in Latin America and are not prepared to deal with the mounting threat. Joey Feste explains that a significant factor in the disruption of this market is how President Jair Bolsenaro has downplayed the virus. Unfortunately, many Brazilians who run their own small businesses (and are considered a part of the informal economy), cannot afford to close down for a month. In Brazil, the informal economy accounts for roughly 35% of GDP, and around a third of the Brazilian working class are considered poor. This builds tension between securing the economy and containing the spread of the virus.

India

Joey Feste explains that in India, only 18% of the GDP comes from the informal sector, but the under-the-table market employs nearly 84% of the country. As fundamental as this has been to their growth, this informal employments means that these individuals will not be included in government assistance programs if they are forced to close shop. The country has 1 doctor per 1000 people, and only 1 hospital bed per every 1000 person, showcasing how ill-equipped they are to deal with this crisis economically. Another massive emerging market that is particularly vulnerable to the pandemic is South Africa.

South Africa

As one of the continent’s richer countries and one of the most-watched by international investors, South Africa has fewer than 1,000 intensive care beds for a population of over 56 million people. South Africa is considered by many economists to have a the greatest vulnerability to the crisis, as it lacks financial wherewithal. According to the IMF, South Africa’s net capital outflows in February amounted to $6.2 billion (2% of GDP), with the value of the rand falling 19.5% to the U.S. dollar.

Emerging Markets Will Require Better Safety Nets

Emerging markets cannot afford the huge fiscal packages announced by Western countries to counter the impact of this pandemic. As a result, more than 90 counties have now asked the International Monetary Fund for help. The IMF has announced a $1 trillion lending facility for countries hit by COVID-19, while the World Bank plans to spend $160 billion over the next 15 months. Joey Feste doesn’t think this will be enough, but it is an important step to stopping these emerging markets from collapsing, as well as protecting their citizens.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes