RIO DE JANEIRO, BRAZIL – A swathe of top investment banks and funds are piling into emerging market assets on a double-lift in confidence after U.S. President Donald Trump’s election defeat and this week’s coronavirus vaccine breakthrough.
With poorer economies that rely on natural resources, cheap manufacturing or tourism set to benefit from a recovery in global trade and travel, as well as a more predictable White House, Morgan Stanley’s message on Wednesday was simply “Gotta Buy EM All!”.
Its big bets are on the currencies of China, Mexico, Brazil, South Africa, Colombia and Russia and a longer list of hard-currency debt ranging from Ukraine’s growth-linked sovereign bonds to Mexico’s state oil firm Pemex.
“We see a good chance that the rally can extend into 1Q 21, with plenty of liquidity (investor money) on the sidelines to find its way into risk assets now with reduced uncertainty,” said Morgan Stanley’s James Lord.
Analysts at another big investment bank, Citi, have also become notably more upbeat.
They expect both the Indonesian rupee and Thai baht to do particularly well as investors barrel back into trade and tourism-dominated economies.
“While actual realisation of tourism revenue may still be months away, light at end of the tunnel, together with reduced concerns over ongoing protests,” will drive up the baht towards 30 per dollar, wrote Dirk Willer at Citi.
Tourism contributed over 10 percent of Thailand’s GDP in 2019, one of the highest shares in the world, World Bank data shows.
Citi is also diving into Mexican and Colombian local bonds. The bank, like others, sees Latin America benefiting the most from a successful vaccine having already gone “overweight duration” on the region after the U.S. election.
“The vaccine news provides an extra boost, simply by improving the global growth outlook and especially the demand —including for commodities — from advanced economies,” Barclays’ Christian Keller wrote, adding EM would be “a winner” from the U.S. election.
Source: Reuters/Bloomberg