Why BlackRock is ‘overweight’ on emerging market and Asia ex-Japan stocks
A number of leading investment banks and funds accumulate assets in emerging markets after the defeat of US President Donald Trump in the election and a breakthrough in the creation of a vaccine against coronavirus.
Market participants looked to the economies of countries relying on natural resources, cheap manufacturing or tourism, hoping to capitalize on the recovery in global trade and travel, as well as more predictable behavior in Washington..
Big bets are on the currencies of China, Mexico, Brazil, South Africa, Colombia and Russia, as well as a longer list of hard currency debts ranging from Ukraine’s sovereign bonds to Mexico’s state oil company Pemex.
«We see a good chance that the rally could continue until the first quarter of next year, with more liquidity. Now there is an opportunity to invest in risky assets now with less uncertainty», – said James Lord from Morgan Stanley.
Analysts at another large investment bank, Citi, also became markedly more optimistic. They expect both the Indonesian rupee and the Thai baht to fare particularly well as investors return to an economy dominated by trade and tourism..
«Although it is still a long way to an adequate realization of tourism revenues, the light at the end of the tunnel is beginning to appear. This should strengthen the Thai baht rate.», – wrote Dirk Wheeler from Citi.
Tourism contributed over 10% of Thailand’s GDP in 2019, one of the highest shares in the world, World Bank data shows.
Citi also points to Mexican and Colombian bonds. The Bank believes Latin America will benefit the most from a vaccine that has already provided «excessive influence» to the region after the US elections.
«Vaccine news provides additional impetus, improving global growth prospects and especially demand (including for commodities) from advanced economies», – wrote Christian Keller from Barclays.
Societe Generale and Citi positively assess the prospects for the Turkish Lira exchange rate after the President Tayyip Erdogan pledged major policy changes by dismissing his central bank governor and finance minister.
Emerging markets have seen steady capital inflows in recent months after investors pulled out about $ 100 billion in early spring, according to IMF estimates. The traditional temptation of these markets with higher interest rates, at a time when many richer countries now have either near zero or negative rates, also plays a prominent role in this..
Head of Emerging Markets Strategy, UBS Manik Narain appreciates the premium offer of Chinese bonds versus US bonds.
«Difference in profitability» is one of the reasons he expects the country’s currency, the yuan, to continue to rise.
«Much depends on how the People’s Bank of China will allow its national currency to strengthen. It is possible that the yuan will return the positions of 2018, before Donald Trump began to introduce duties», – Narain believes.