Emerging Market Debt Distressed and Commodity Outlook
Updated: Sep 20, 2020
While COVID-19 cases surge in Latin America, some countries balance sheet is distressed and would elevate the downward risk of the commodities market. According to Bloomberg Intelligence, the Bloomberg Commodity Spot Index and MSCI Emerging Market are at historically high interdependence with 0.90 10-year annual correlation, and both plummeted by 20% to April 30. Apart from gold, the outlook for copper, corn, and gasoline remain bearish predominantly influence by the low-performed oil and gas index.
As investors turn their attention into the Emerging Market region seeking for high yield spread, the combination of strengthening dollar position and low foreign exchange reserve in countries such as Argentina and Chile, the economic zone might face the threat of debt distressed and the possibility of restructuring with Argentina already in the process before the pandemic hit. If the emerging economies default, the BCOM index will continue to tilt downward as the emerging markets failed to recover. The focus is now turning to governments in this region to design their fiscal and monetary policy to address current economic outlook and improving their balance sheet.