EM Investors' Hopes of Market Rally Extending to 2021 Ride on Covid Vaccine

Business Standard EM investors' hopes of market rally extending to 2021 ride on Covid vaccine

A Bloomberg survey of 63 investors, strategists and traders found the efficacy of coronavirus vaccines is likely to be the biggest market driver for next year.

Emerging-market watchers may be confident the rally will continue into 2021, but it’s the roll-out of vaccination programs that concerns them the most.

A Bloomberg survey of 63 investors, strategists and traders found the efficacy of coronavirus vaccines is likely to be the biggest market driver for next year, beating out worries about the fiscal laxity of governments and China’s economic growth path. China still emerged as the overwhelming favorite across currencies and stocks, while investors were most optimistic for Latin American bonds, the Nov. 18-25 poll found. Argentina remained a source of unease.

The findings underscore how the battle against the Covid-19 pathogen turned markets on their heads in the past 12 months, forcing investors to throw out the playbook and look for fresh cues for the direction of asset prices. After collapsing in the first half, emerging markets have rebounded to hand investors more than $5 trillion in wealth this year largely as vaccine breakthroughs supported risk assets. Bonds have climbed to near record highs, while benchmark gauges of stocks and currencies are at their strongest levels in more than two years.

“As economies reopen, vaccines are distributed and risk appetite returns, 2021 could be a break-out year for emerging markets, especially if the U.S. dollar continues to weaken,” Christopher White, a London-based co-manager of the emerging markets discovery fund at Somerset Capital Management LLP. “An unprecedented U.S. peacetime fiscal deficit combined with aggressive monetary stimulus is putting pressure on the dollar, which is very helpful for many emerging economies.”