Original source: ACTIAM
While the dust is settling down from the initial outbreak of COVID-19, it might be a good time to wonder what the future will hold for the financial inclusion sector. Can we learn anything from the past?
COVID-19 AND THE IMPACT ON EMERGING MARKETS
Since the WHO declared the COVID-19 outbreak a public health emergency of international concern in January, it has spread across the globe. Stock markets in major economies, such as the United States, the Euro area, and Japan, all fell sharply and witnessed a surge in implied volatility as skittish investors tried to factor in the latest risks posed by the new virus. At the same time, credit spreads have widened broadly across markets as investors reallocated from relatively risky to safer assets. High-yield and emerging-market bonds are hit particularly hard by these reallocations1, 2.
According to the IIF3, debt issuance in emerging markets in March froze and foreign investors withdrew a record US$83bn in the 30 largest economies – outflows that widely exceed those experienced in the financial crisis of 2008-09. Some US$23bn has found its way back in April and May, but mainly from investment grade countries. Previous bouts of large Emerging Markets’ outflows show that periods of inflows are common after sharp outflows, but a full retracement of portfolio flows can take a much longer period, highlighting current and future financing needs.
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