15 January 2021
This report has been prepared by Northcape Capital, the underlying investment manager for the Warakirri Global Emerging Markets Fund.
The Biden halo continued to buoy global capital markets over December. Indeed, it has continued into January 2021. A Biden win was always going to be a clear positive for EM capital markets and the renewables sector – and negative for the US dollar and this has clearly already turned out to be the case.
Similar to November, the rise in stocks over December was characterised by an ongoing rotation into cyclical names across both EM and DM equity markets. In the case of EM, the best country sectors for the December quarter were all highly cyclical: Brazil materials (+55%), Mexico financials (+54%) and Brazil energy (+54%).
At the sovereign level we remain collectively overweight India, Malaysia, Thailand, Mexico, South Korea, Taiwan and Indonesia, and underweight our assessed more riskier EMs such as Turkey, South Africa, Argentina, Russia, the Middle East and China. We think the former are collectively better placed to undertake policy responses to lessen the impact of growth shocks (including COVID-19) and subsequent economic slowdowns.