Update Country Report Maldives 13 Mar 2020

Event

Stockmarkets across Asia fell on March 13th, following steep declines in trading on European and US markets the previous day.

Analysis

The volatility on global financial markets will complicate Asia's efforts to mount a post-coronavirus economic recovery. The swings being experienced by regional financial markets will have an impact through negative wealth effects (discouraging household spending) and corporate financing and valuations (discouraging investment). Economies such as Hong Kong and Singapore, in which financial markets generate significant portions of GDP and employment, are directly exposed.

The more open and globally integrated Asian economies are experiencing the sharpest declines in stock valuations. In the month to March 13th, bourses in Australia, Japan, Philippines, South Korea and Thailand declined most steeply, by 25-30%. Falls on the markets in Hong Kong, India, Indonesia, New Zealand, Singapore, Sri Lanka and Taiwan have been in the 15-20% range. Several stock exchanges have adjusted rules on short-selling and trading halts in a bid to stem the falls.

Chinese stocks have outperformed in the region, declining by 2.4% in the past month. Stock valuations in China fell sharply in early February, when trading resumed following the Chinese new year holiday, but have stabilised as coronavirus infections have slowed and expectations of stimulus have built.

Fluctuations on stockmarkets are one of several factors set to engender a stronger regional policy response. Monetary policy settings will be widely loosened to ease financing strains for firms. Meanwhile, fiscal stimulus efforts will be stepped up to boost demand; the packages announced so far in response to the coronavirus, including by Hong Kong, Indonesia, Japan, Singapore, South Korea, Taiwan and Thailand, have been modest in scope. Details of a Chinese stimulus package are expected later in March.

Low borrowing costs, as investor demand for government bonds strengthen, will give Asia's developed economies space to expand fiscal support. The governments of less-developed economies that depend on external borrowing may not have as much space, as heightened risk aversion causes global investors to pull funds from emerging markets.