For example, Chinese indices are losing 35% (Hang Seng) to 43% (China H-star) from their February 2021 peak. And this trend will not quickly reverse even if the military conflict in Eastern Europe ends right now because economic and reputational damage has already been done, which will take months or even years to undo.
The Russian rouble remains under pressure, while all the new controls on currency transactions in Russia are alienating the exchange rate at home and on global FX. The 12% commission on currency purchases explains the difference between the external and domestic exchange rates. That said, one must realise that “catching the bottom” of the ruble is hardly wise when new sanctions are imposed almost on a daily basis. The economic landslide continues with extreme speed.
Across the other EM markets, there are a concern or even pessimism about the medium-term outlook and some relative easing of the fear level are striking in the stock markets today.
Commodity markets, which continued their move towards new extremes yesterday, have encountered substantial selling, which continues today. Some reduction in the excitement can be attributed to hopes of progress towards a peaceful resolution of the conflict between Russia and Ukraine.
Nevertheless, the conditions already prevailing in commodity markets are putting serious pressure on EM equities and currencies. EM populations are more vulnerable to soaring basic food and energy prices and currencies to capital outflows due to flight to safety. All of this is tightening financial conditions, undermining the economic recovery that investors had hoped for at the start of the year because of the retreat of the pandemic.