According to Rabobank, the currencies of emerging countries are under pressure as negative sentiment prompts investors to reduce risk in their portfolios and, accordingly, reduce their holdings in these markets.
Serious currency depreciation could be a problem for emerging economies because products from abroad become much more expensive while countries such as Argentina may find it more difficult to service their foreign currency debt, the analysts added.
As COVID-19 continues to pull down global growth, Rabobank called on central banks and governments to implement robust responses to prevent the virus crisis becoming a financial crisis as well.
The United Nations Conference on Trade and Development (UNCTAD), estimated that COVID-19 could cause global foreign direct investment (FDI) to drop between 5 and 15%, according to a report published on 8 March.
Although the UN agency had previously predicted steady levels of investment for the 2020 – 2021 period with a possible 5% increase, it has now revised its figures, warning that investment flows could slump to their lowest levels since the 2008 financial crisis.