Vaccines will – hopefully – make 2021 the year of recovery from the Covid-19 coronavirus pandemic, which has upended some sectors and reinforced the dominance of others.Covid-19 ended a decade of dollar strength, and expectations are for 2021 to bring more greenback pitfalls.
Donald Trump’s imminent exit should also reduce trade and political tensions, which were dollar-supportive. With developing economies seen benefiting from recovering global trade, tourism and commodities, a weaker dollar and a more predictable White House, Morgan Stanley’s message is: “Gotta Buy ’Em All!”
The sentiment swing towards a sector that’s languished for a decade is driven of course by hopes of a China-led growth recovery, but also the lure of higher emerging market interest rates, given 0% or negative yields across richer countries.Institute of International Finance data shows investors shovelling money into emerging market assets at the fastest rate in nearly a decade.
And not much policy room is left anyway. JPMorgan estimates that over 80% of sovereign bonds from richer nations pay negative yields after factoring in inflation. Many investors, including BlackRock, are now underweight the sector. Concerns about pollution, the climate crisis and labour rights are the main drivers. But the IIF also points out that 80% of “sustainable” equity indices outperformed non-ESG peers during the pandemic-linked selloff, while renewable energy has been the runaway outperformer since then.