K-shaped recovery in emerging markets makes rich richer amid Covid-19

Emerging markets are being split apart by an increasingly K-shaped recovery. Stocks and currencies from wealthier developing nations have outperformed their poorer peers since the coronavirus outbreak. The gulf may even get wider if the pandemic leads to deeper recessions in the most disadvantaged countries.

As long as the virus lasts the K-shaped divergence will continue, said Rob Subbaraman, global head of macro research at Nomura Holdings. “In the EM world with rapidly rising debt and deep recessions, the cost of servicing debt is going to get more burdensome and we cannot rule out some financial crises or major debt restructuring.”