Bloomberg — The surging volatility across global financial markets sent shock-waves through emerging nations, with investors rushing to safety amid fresh turmoil at Credit Suisse Group AG.
A gauge of developing nation currencies fell for a second day, with the Hungarian forint and the Chilean peso the worst performers, dropping at least 2.8% each. An index of emerging-market stocks closed higher, rebounding from a December low as risk appetite slightly improved during the US afternoon. The CBOE Emerging-Market ETF Volatility Index, the VIX equivalent for developing-nation shares, jumped 7.7 percentage points, its biggest one-day jump in almost a year.
Riskier assets around the world got some relief after Bloomberg News reported that Swiss authorities and Credit Suisse are discussing ways to stabilize the firm.
The earlier sour mood came after the turmoil at the Swiss firm that followed the collapse of a trio American regional banks, leaving investors worried about potential chain reactions. Government-debt yields plunged globally as traders ditched bets on additional rate hikes and began pricing in cuts by the Federal Reserve and other major central banks.
“We’re entering uncharted territory” amid banking fears, recession worries and technical factors amid stop-loss orders and VAR shocks, said Hari Hariharan, the chief executive officer at New York-based NWI Management. “Strap your seat belts on and pray.”
Barings Ltd. has turned cautious on emerging-market debt, saying the collapse of US lender Silicon Valley Bank and the stress in Credit Suisse risk a chain reaction as companies struggle to get access to financing.
S&P Global Ratings warned US banking troubles will weigh on Latin American financial institutions as risk aversion in global markets results in higher borrowing costs and scarce funding.
In Latin America, the Chilean, Colombian and Mexican pesos all fell at least 1.9% versus the dollar. Banking shares were the biggest decliners on the Mexican stock exchange, while Brazil’s benchmark stock index was dragged lower by commodity-related companies. Bolivia’s sovereign spreads jumped, putting the country’s dollar debt above the threshold to be considered distressed.
“For the EM space, this once again leaves the market at risk of being buffeted by risks outside local policy makers’ control,” said Robert Hoodless, an FX strategist at InTouch Capital Markets in London. “For now, the market remains in the eye of the storm.”
--With assistance from Srinivasan Sivabalan and Maria Elena Vizcaino
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