PARIS (Agefi-Dow Jones) --Emerging currencies were among the big winners in the first positive results on Covid-19 vaccines and the election of Joe Biden as President of the United States. This appreciation was held back by the recent rise in the dollar, in the wake of the jump in American long-term rates and the prospect of additional fiscal stimulus across

“Emerging currencies have rebounded since November as risk appetite has improved,” note Jasper Rasmussen and Andreas Steno Larsen, strategists at Nordea. Although over the whole of 2020, they depreciated by 2.6%, according to Deutsche Bank, they rebounded significantly in the fourth quarter (6.7%) and more particularly between November and December

“They have enjoyed a good run in recent months, gaining almost 10% against the dollar since September, supported by American elections, vaccine news, a weaker dollar and a return of flows to local markets in the last two months of the year,” said George Saravelos, strategist at Deutsche Bank. According to a Nordea index, the ten major emerging currencies recovered five sixths of the fall in early 2021

A necessary rebound in growth

Most strategists are confident in the pursuit of appreciation. “With fiscal and monetary easing in developed countries, an abundance of cash in dollars, prospects for increased global trade, and a strong rebound in growth in emerging markets, this increase is expected to continue in 2021,

Barclays strategists also expect a continuing favourable wind, especially for high-beta currencies, which remain undervalued. These include the Brazilian real, the ruble, the Turkish lira or the South African Rand. Catching up has been done with great disparity. While the yuan appreciated by 6.7%, the real fell by 22.6% and the rand limited the breakage with a depreciation of

Lombard Odier strategists also expect emerging currencies to hold up well in the first half of the year. “The appreciation will be supported by the prospect of a clear recovery in growth in the first half of the year. Even better news about vaccines could add to this appreciation,” they say. A necessary rebound in growth. “The structural problems of emerging economies remain and the sustainability of any rally will require evidence of stronger growth,” warn Barclays strategists. The IMF anticipates a 6% rebound in emerging countries this year compared to 3.9% in developed countries

Selectivity

One of the major questions for emerging countries is their ability to vaccinate their population. This is one reason why some strategists, like Deutsche Bank, are being selective: “Overall, we remain constructive on the asset class for 2021 due to the weakness of the dollar, post-Covid reflation, and a structural underweighting of emerging assets in portfolios. But we are tactically more careful. We expect the first quarter to be more discriminating than the fourth quarter of 2020 was.”

Indeed, the issue of vaccination depends on the ability to return to the level of gross domestic product (GDP) prior to the coronavirus crisis and a sustained pace of growth. “The return to normality will be very uneven due to diverging vaccination schedules. Israel is on track to vaccinate most of its population by the end of the quarter, while South Africa and Brazil have not yet started,” Deutsche Bank said. For those who are betting on the ruble and the Turkish lira and abandoning the Mexican rand and peso, the Democratic victory in the Senate has also introduced additional risk for emerging countries who are particularly sensitive to the trajectory of American rates

In its 2021 outlook for emerging markets, Société Générale CIB reiterated that the long-term bearish cycle of emerging currencies was not over. It would have simply been postponed.