08 December 2020
This report has been prepared by Northcape Capital, the underlying investment manager for the Warakirri Global Emerging Markets Fund.
After the September correction, EM capital markets resumed their recovery over October and this continued, in fact intensified, over November. We knew Biden’s win would be positive for risk assets, but the impact to the upside surprised most market commentators. Growing speculation that COVID-19 vaccines were to be imminently approved further boosted market sentiment (Pfizer-BioNtech vaccine was authorised by UK government on 2 December).
The combination of these two forces over November saw the EM US$ index vault +9% (the largest monthly gain since March 2016). The gain took the 2020 YTD return back into positive territory (+8%). We recall at the COVID-19 equity market nadir (23 March 2020) the EM index was down -32% YTD – it is up a whopping +60% since then.
For many EM countries the growth rates of new COVID-19 cases continue to slow in recent months. However, a growing cohort of EMs has seen some reacceleration in COVID-19 cases of late.
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.
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