Emerging-market investors predict rally will roll on into 2021

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 November 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 US dollar continues to weaken,” Christopher White, a London-based co-manager of the emerging markets discovery fund at Somerset Capital Management LLP. “An unprecedented US peacetime fiscal deficit combined with aggressive monetary stimulus is putting pressure on the dollar, which is very helpful for many emerging economies.”

Asia kept its top position for currencies and stocks as the region leads the recovery from the pandemic, the survey showed. Latin America, with relatively higher yields, eclipsed other regions as offering the best prospects for bonds.

The outlook for China’s economy remained one of the top three likely determinants for prices in 2021. Stimulus spending and its impact on the fiscal health of governments took the third spot as worries emerged over how much scope central banks have left to lower borrowing costs.

US stimulus will remain key to risk appetite, with a majority of respondents estimating the US will approve a package of between $1 trillion and $2 trillion to revive the world’s biggest economy. Crucial to reaching a bigger package than the $916 billion being discussed will be the outcome of the Jan. 5 run-off elections in Georgia’s two Senate seats.

With the global stock of negative-yielding debt near $18 trillion, the hunt for higher returns will continue to favour emerging markets over developed peers. Total wealth in developing-nation stocks and bonds now exceeds $33 trillion, more than the economies of the US, Germany and Japan combined.

That total stood at $28 trillion at the start of the year, based on data compiled by Bloomberg using the market capitalisation of equities from 27 nations listed by MSCI Inc. along with Bloomberg Barclays indexes of local- and foreign-currency bonds.

Higher-yielding currencies and bonds, such as those in Mexico, Brazil and India, were favoured in the survey, a shift from the previous poll, when low yielders including South Korea, Thailand and Poland were preferred.

Survey participants were also asked about the outlook for inflation, monetary policy and economic growth across 12 emerging markets. Below are the charts summarising their views:

Here is a list of the survey participants:

Aberdeen Standard Investments	Loomis, Sayles & Co.
ADM Investor Services International	M&G Investments
AllianceBernstein Holding LP	Marketfield Asset Management LLC
Amundi Asset Management	Maybank Kim Eng
Aperture Investors	Mediolanum International Funds
Argentem Creek Partners	MFS Investment Management
Asset Management One Co.	Mirae Asset Global Investments LLC
Auerbach Grayson	Monex Europe
Australia & New Zealand Banking Group Ltd.	Monex Inc.
Axi	Nikko Asset Management Europe Ltd
Balchug Capital CJSC	Nomura Holdings Inc.
Banco Bilbao Vizcaya Argentaria SA	Office Fukaya, Research & Consulting
BNP Paribas Asset Management	Pictet Asset Management
Capitulum Asset Management GmbH	Promeritum Investment Management LLP
Credit Suisse Group AG	Rabobank
DBS Group Holdings Ltd.	Robeco Institutional Asset Management BV
Deltec Asset Management	SCB Securities Co.
Deutsche Bank International Private Bank	Schroders Plc
DuPont Capital Management	Societe Generale SA
Falanx Assynt	Somerset Capital Management
Federated Hermes	State Street Corporation
Fidelity International	Sumitomo Mitsui DS Asset Management Co.
Gemcorp Capital LLP	TD Securities
Great Hill Capital, LLC	The Global CIO Office
GW&K Investment Management	TS Lombard
HSBC Global Asset Management	UBS Asset Management
ING Groep NV	Union Investment Privatfonds GmbH
Insight Investment Management Global Ltd	UOB Asset Management
J.P. Morgan Asset Management	UOB Private Bank
Janus Henderson Investors	Vanguard Asset Management Co.
Kasikornbank Pcl	Wells Fargo Securities
Legal & General Investment Management