Coronavirus Pandemic and How Sentiment is Impacting the Emerging Markets?
In our previous blog post, we talked about the recent developments related to Corona Virus and related news flow. The impact on the markets seems to have a local component as Asian markets close to China have suffered more than others. Geographically distant markets have remained shielded. Let us look at how the EMAlpha Sentiment Score has evolved over the last month for some of these emerging countries and the performance of their equity markets.
Fig. 1 shows the severity of Corona Virus cases by region. The first cases were found in China where the virus has continued to spread. A number of cases have also been found in various other countries. As we mentioned in the prior blog, while the most severe Corona Virus cases have been in its country of origin, China, the maximum market impact has been in smaller neighbouring countries, like Thailand.
Fig.1: Number of Corona Virus cases by region. Darker color implies a higher number. Source: Bloomberg (https://www.bloomberg.com/news/articles/2020-02-08/coronavirus-death-toll-rises-to-805-passing-sars-virus-update).
Fig. 2 shows the performance of equity markets in some of China’s neighbouring countries which have seen a high number of Corona Virus cases. For comparison, we have also included India and Brazil. India borders China, but has seen a relatively small number of Corona Virus cases. Brazil has not seen any cases yet. Fig. 2 shows that, outside China, the behaviour of equity markets over the last few weeks seems to be related to the number of Coronavirus cases.
Fig.2: Equity Market performance (cumulative returns of stock indices) Jan-Feb 2020. Is there a relation between Coronavirus and the market performance?
Fig. 3 shows the EMAlpha Sentiment Score for these countries over the last few weeks. The Sentiment Scores show a clear relationship between sentiment and market performance. For most countries, the Sentiment Scores went into the negative territory, owing the Corona Virus news flow, in the last 10 days of January. Brazil was an exception though. Fig. 3 shows that the Brazilian sentiment was somewhat ok compared to the Asian countries. On the other hand, the sentiment for Thailand, Indonesia, Malaysia and Hong Kong stayed quite depressed in the Jan 20th – Jan 31st period. India also saw a streak of negative sentiment around the same period, but it was related to its union budget announcement made on January 25th, and the Indian market staged a quick rebound over the next couple of d
Fig.3: Equity Market Sentiment (EMAlpha Sentiment Score) Jan-Feb 2020: Of the countries shown, Thailand saw the most depressed sentiment score during the same period when its equity market fell sharply. Brazil’s sentiment score was more contained and so was its stock index.
Overall, the news sentiment from Corona Virus played a major role in the market performance over the last month. While some markets such as Hungary and Turkey (not shown here) saw market moves that were idiosyncratic in nature and not related to the virus, it is fair to say that a number of economies, especially those close to the Corona Virus epicentre, were heavily driven by sentiment.
EM Alpha LLC
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EMAlpha, a data analytics and investment management firm focused on making Emerging Markets (EMs) accessible to global investors and unlocking EM investing using machines. EMAlpha’s focus is on Unstructured Data as the EMs are particularly susceptible to swings in news flow driven investor sentiment. We use thoroughly researched machine learning tools to track evolving sentiment specifically towards EMs and EMAlpha pays special attention to the timely measurement of news sentiment for investors as these markets can be finicky and sentiment can be capricious.Our team members have deep expertise in research and trading in multiple Emerging Markets and EMAlpha’s collaborative approach to combining machine learning tools with a fundamental approach help us understand these markets better.
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