EMNES Working Paper 38 – The Impact of COVID-19 on Emerging Markets

August 21, 2020
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The COVID-19 pandemic is impacting global markets through unprecedented circumstances. Fears surrounding such a novel virus have led to dramatic market turbulence and massive falls in stock prices.

In this paper, we explore the impact of COVID-19, in a comprehensive sample of 45 emerging countries. We track the performance of each of their markets during the outbreak, using major stock indices and we compute the volatility using a GARCH (1,1) model.

Moreover, we report conventional and Islamic bond issuances and assess investors’ perceptions towards credit risk by examining the premiums on sovereign credit default swaps.

We then compare the results to the period of the global financial crisis. We find that, indeed, COVID-19 has struck the emerging countries harshly, driving sharp declines in stock market indices, causing an escalation in volatility levels, and widening the premiums on sovereign credit default swaps. However, such upheavals have not yet reached the levels of the global financial crisis.

Finally, we examine the reactions of the IMF, local governments and central banks in response to the crisis.

EMNES Working Paper 38