Money managers bet on big rebound in emerging markets after Covid – With insights from The Wall Street Journal

As the reality of a safe and effective Covid-19 vaccine draws nearer, investors and money managers are investing money into emerging markets – some of which found themselves at the frontline of the Covid-19 onslaught. According to the Wall Street Journal, investors “channelled $10.8 billion into funds that invest in emerging-market stocks and bonds”. Countries such as Brazil and India that were hardest hit at the peak of the pandemic continue to suffer the side-effects of an economy-wrecking pandemic. Still, risk-on investment into emerging markets could be just the shot in the arm for developing economies, including South Africa that was recently the recipient of even further investment downgrades. – Jarryd Neves

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Covid vaccine hopes send record funds to emerging markets

Money managers look to life after Covid-19, betting on a big rebound in emerging economies

emerging markets

The amount of money flowing into emerging-market funds last week hit an all-time high, as advances in vaccine development and a weaker dollar boosted investors’ risk appetite.

Investors channeled $10.8 billion into funds that invest in emerging-market stocks and bonds, according to research from Bank of America and EPFR data, a sum the bank said was the highest ever. The largest net purchases by foreign investors included Indian and South Korean equities, as well as Mexican government debt, according to data from Capital Economics.

The activity marked a turnaround for many developing economies, which have been largely shunned this year due to the spread of the coronavirus and the subsequent hit to global growth. Fund managers pulled more than $70 billion out of emerging markets in March, April and May, according to Morningstar.

But positive developments for vaccines in recent weeks have investors preparing for life after Covid-19, and some are making bets on how to reap the biggest rewards.

Meanwhile, the dollar has been falling for several weeks, as the Federal Reserve is expected to continue to flood the market with dollars to support the U.S. economy. The WSJ Dollar Index, which measures the dollar against a basket of its peers, on Tuesday hovered close to a 2½-year low.

Oil, metals and most other major commodities are priced in dollars, so this delivered a boost to demand and sellers. Countries that generate a significant portion of their gross domestic product from natural resources, also including Russia and South Africa, are expected to benefit.

Their currencies are reflecting this. The ruble has appreciated 4.2% against the dollar this month. The South African rand and Mexican peso both traded close to their strongest levels since early March on Tuesday.

“The currency strength against the U.S. dollar means that central banks can cut rates a bit further in this current environment, in places like South Africa and Mexico,” said Edward Glossop, an economist with a focus on emerging markets at Capital Economics.

emerging markets

Kieran Curtis, an emerging-market fund manager at Aberdeen Standard Investments, has bought Mexican and Brazilian government debt for this reason. He has also recently snapped up bonds issued by Caribbean islands such as the Bahamas in a bet that the vaccines will boost tourism.

To be sure, net flows to emerging markets for the year are still negative, meaning investors pulled more money out of developing countries than they have put back in. But some analysts expect this balance to shift.

“This mix of currency and asset returns that really favor emerging markets, we see these trends extending into 2021,” said Mr. Ramjee. “The EM story is ticking many positive boxes.”

Write to Anna Hirtenstein at [email protected]

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Appeared in the November 25, 2020, print edition as ‘Emerging-Market Funds See Record Inflows.’

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