Valuation Caution Returns as Emerging Markets Face 2021 Reality
Bloomberg 1/4/2021 Farah Elbahrawy, Simon Flint and Sydney Maki
(Bloomberg) Rarely, if ever, can a year have started with price levels in emerging markets looking so divorced from the fundamental backdrop.
Rising Covid-19 case numbers and uneven rates of recovery in the biggest of the developing economies underscore a nagging concern that this will be about as good as it gets for stocks, bonds and currencies. Currencies surged to a record earlier on Monday as the dollar slid. The relative strength index on MSCI Inc’s emerging-market equities gauge is above 70, suggesting the market is in overbought territory. The average yield on local-currency debt is less than 20 basis points above the all-time low of 3.46% reached in May.
Rising Covid-19 case numbers and uneven rates of recovery in the biggest of the developing economies underscore a nagging concern that this will be about as good as it gets for stocks, bonds and currencies. The relative strength index on MSCI Inc’s emerging-market equities gauge is above 70, suggesting the market is in overbought territory. The average yield on local-currency debt is less than 20 basis points above the all-time low of 3.46% reached in May.
The fact remains though that with central-bank stimulus efforts and vaccine roll-outs providing comfort, most investors are confident the rally has further to run. Emerging-market economies will post an average fourth-quarter growth rate of 2.2%, according to a Bloomberg survey, though many see the efficacy of inoculation programs as a key driver for sentiment. The World Bank’s Global Economic Prospects report on Tuesday is set to provide further clues on the pace of recovery.