tv Whatd You Miss Bloomberg December 9, 2020 4:30pm-5:00pm EST
and be healthy. get off the floor and get on the aerotrainer. go to aerotrainer.com, that's a-e-r-o-trainer.com. caroline: from bloomberg's world headquarters in new york, i'm caroline hyde. joeromaine: a down day for the . bake tech stocks dragging. joe: the question is, "what'd you miss?" caroline: emerging markets. emerging-market stocks took a pause, but the longer-term picture had seen them testing
highs we had not seen in years. progress on a vaccine is ratcheting up the appetite for risk for emerging markets. yearstrategists think next developing nations stocks are poised for their breakthrough all-time highs set in 2007. it is not just stocks, it is investors favoring bonds, currencies as well. to add fuel to the fire, hungary and poland listing a veto for the landmark european stimulus package helped their currencies too. this is another area of that boon. joe: today was quieter across risk assets. em, which was very weak in the immediate wake of the crisis and a major underperformer precrisis for years has been on a tear. you see the msci emerging markets index like a rocket the past several weeks.
i think it is all-time highs, relative to the s&p and others it is low, but it is coming back hard. romaine: don't get ahead of yourself. it came away 12 points from the 2018 high. i know you are enthusiastic. joe: let's do a different show. if they did not hit an all-time high, what is the point? [laughter] no, a lot of enthusiasm. today, joining us with more insight is a bluebird emerging markets reporter. -- bloomberg emerging markets reporter. what the bigger picture is people are getting bullish about em in a big way. what is driving it? to dozens ofd investors over the past couple days and weeks, just hugely bullish going into the coming year.
a lot of it has to do with how effective a vaccine seems like it will be. hopefully those will help certain economies to reopen. that is the main driver people are betting on. the federal reserve and other major central banks will hopefully stay accommodative according to these investors and traders we surveyed. caroline: how much do we see people put all the emerging markets together, how muchor -- or how much do people think the need to go by a country by country vibe? sydney: it depends. asia has been a favorite, especially when it comes to currencies and stocks. there has been a lot of enthusiasm, because that was the region that came out of the downturn that latin america and europe had this past year. even in latin america, when it
comes to bonds, higher yields have been interesting for certain money managers. a lot of people have been waiting for this moment. this was the trade of the decade a couple years ago, a couple years before that and before that. this time around, are the conditions different? what is different that drives em stocks as a group to those all-time highs? sydney: that is still up for debate. one thing i heard is over the past couple years there have been a lot of factors, especially in the stocks world, stopping company management from making decisions. whether that was the pandemic in 2020 or u.s. china trade tensions, but now going forward, there is a lot of excitement companies will be able to make decisions, boost those earnings
and that could set a new standard for emerging-market equities. joe: when we talk about those 2007 highs for em, we had this current commodities boom, oil, iron ore and copper. how much is em as an asset class overall in sync with the commodities sector? sydney: it is still something investors are watching, especially in latin america where there are a lot of producers of these commodities, china, which is demanding these commodities are sent over for commodity purchases. that cycle is showing no signs of slowing. be some1, there may kind of recovery, commodity demand will be driving some of that asset gain. maki giving us an update on this boom in
a move most people expected as the country makes a bid to try to strengthen the economic recovery there. we have seen weak spots not only in brazil, but other latin american countries. joe: in the meantime we have seen these latin american currencies gaining with the risk on appetite. this is the dollar against the chilean peso, mexican peso, over the last six months. that means all of them have rallied. we see a lot of these latin american currencies, all of which tied to different commodities, in some way having a good back half of the year. caroline: meanwhile, we keep an eye on the brazilian real. let's take a deeper into these latin american moves. a em strategy with state street is with us. your perspective on the future as we head toward 2021.
will we see a commitment to this uptake in asset values in the emerging market? >> it seems like the stage is set for a more bullish tone for emerging markets into 2021. there are a lot of reasons why. we are seeing this rotation within emerging markets itself. most of this year we have seen a focus on asian assets, in particular china and north asian assets. we are seeing this rotation into latin america, which has lagged the price action in other emerging-market economies. they tend to be more exposed to cyclical recoveries and the commodity cycle. it makes sense that into 2021 these are coming more into focus. romaine: in the current moment, though there is a lot of focus on covid, on the potential vaccine rollout, how much of a boost can that be for latin
america em should that vaccine roll out as expected? >> the vaccine is a game changer. there will still be a big trench to dig out of post-covid, but it does remove the uncertainties withcomes with dealing this for another year. emerging-market economies were struggling to provide fiscal support. when we look at the countries that have been most impacted by the virus, had the hardest time getting it under control, the u.s., india, mexico and brazil. the emerging-market economies of brazil and india stand out as benefiting from a vaccine. joe: with latin america specifically, a lot of the rally has also been associated with this rally in commodities, we know oil has rallied, but iron
ore and copper, w -- which i presume helped chile. how much does having a view on these currencies and markets also require you to have a commodities view? emily: it is certainly a component. given how tight these companies are to oil and copper prices -- oil is slightly down on the year, but copper is up on the euro must 20%. -- on the year almost 20%. we have seen that benefit things like the chilean peso and south african rand. more of that action will come through, particularly now that we are in a slightly different risk environment. investors have more of an appetite for the emerging-market economies than months ago. weoline: it is interesting are getting the news from the brazilian central bank perhaps no longer needing the forward guidance outlook.
they are saying that does not mean a rate hike. at what point do we start to see latin america central banks begin to normalize? emily: brazil will be an interesting case to 2021. i think it will be one of the first emerging-market central banks to turn to rate hikes and one of the first to start the normalization crisis -- normalization process. especially when we have a return to normalcy, places like brazil are not able to keep the emergency rate cut policy they have now. 2% in brazil right now feels like 0%. they will not keep that for the duration of the year, particularly as inflation comes back. we will start to see yields rising and the currency coming back with a period advantage, which will be noticeable for brazil. romaine: i am curious do how much of these em banks follow
the fed. it seems like in years past you could set your watch by what the fed does. that correlation seemed to break down over the next year. is that correlation going to return? emily: that is a great point. it seems like we are entering this place where the emerging-market central banks will be on hold for a while. that will be the case for the fed, the ecb, and bank of japan. it becomes a game of emerging-market economies where you have the potential for them to run hot. those may be the ones that have room to tinker with policy. joe: in terms of lessons from this crisis, something that fascinates me, we saw some em's did forms of qe, some of them we saw do aggressive physical expansion. -- fiscal expansion.
have we learned some countries have more power to run countercyclical fiscal policies than during crises of the past? emily: i think so. it has been an amazing time for monitoring fiscal policies to see how well we can respond to crises when needed. wethe emerging-markets side, have seen more easing both on the monetary side and more companies and on the fiscal side than we have ever seen in reaction to other crises. there is more room to potentially even venture into spaces like quantitative easing, asset purchase programs, which were embraced by a lot of emerging markets. this is a net positive. there are mutuals that can be used in the em space. romaine: emily, always great to get your thoughts. emily weis over at state street. i want to get you caught up on
what is happening in the u.s. on that budget bill. a one-week stopgap bill passed through the u.s. house. bills appropriations started in october. joe: great to see our politicians coming together to fund the government for one week. coming up, we moved to europe as the standoff between poland, hungary and the rest of the you and this o discussed the budget deal. this is bloomberg. ♪
hungary and poland listing their veto over that stimulus package today. joe: the $2.2 trillion to millis package had been agreed -- stimulus package had been agreed to months ago. in the eu, it takes a long time to get people to agree. hungary and poland have agreed to a compromise, but then they will have another talk on thursday where the leaders will agree to it and we will see where it goes. amongy and poland were the big winners in the currency market today, reflecting optimism that this deal is finally getting approved. romaine: big movers. they finally saw dollar strength, up 1/10 of 1%. joining us now with more insight is global head of currency strategy to talk more about what we are seeing in the fx space. let's start with the dollar.
for a while everyone was shorting the dollar. now there is talk more about a weakness. what do you see? >> i continue with dollar weakness. i am not one of these uber bears on the dollar. i think we remain in a cyclical downturn. the fed is ultra dovish. the u.s. economy is underperforming because we can't get the virus under control yet. in, a newiden gets administration, i think we start thearve out a body to dollar. numbers,ok at the europe is already bending the curve again. just in the mid-november peak they are starting to control the virus yet again. that is what is behind this dollar underperformance. joe: the european curve is going
down, the u.s. curve is going up. euro has been on a strong multi-month rally against the dollar, last few days excepted. em-eu currencies act so that the euro is going to outperform, they will outperform that? >> that is what we are seeing. em across the board has been on a tear. [indiscernible] that has been laid to rest. we have a couple other event risks. hopefully we have the eu budget out-of-the-way, but brexit is out there, possible government shutdown is out there. i think they will all be resolved, which is favorable for risk in emerging markets. brexit is almost a coin toss at
this point. caroline: exactly. dare i go there -- i know we are talking emerging markets -- but quickly, on the pound, what are you expecting? >> it's so binary. if we get a deal towards 135, -- iwe are down below 125 think most in the market are pricing in some sort of skinny deal, some sort of limited deal where everyone can claim victory and hash out the details next year. most in the market are positioned to that. sure, the sterling will rally a bit. very few are positioned the other way. the last thing the u.k. and eu needs in the middle of a
pandemic is hard brexit, right? these politicians should do the right thing, but joe was joking earlier politicians don't always act rationally or do the right thing. with the broader macro risk ahead, during the trade war and prior to the covid crisis, a lot of folks were looking at the aussie dollar end kiwi yen -- and kiwi yen. what are you looking at now? >> the equity markets, em are pricing in to me an end to the pandemic in 2021, growth resumes, bond prices go in. we are trying to see that fall into place. you want to talk about asymmetric positioning, almost everyone is positioned for that. if there is some sort of third wave of the virus, that is where
the bottom falls out. the policymakers are doing what they can monetarily, fiscally, but it is about getting this virus under control. joe: it is important. at some point the virus will be under control, maybe by the middle of next year. the question i keep going back to is what is the postcrisis environment? wellrisis, em hadn't done in a long time and perpetually underperforming. do we just go back to the old normal, or are there conditions in place such that postcrisis might look meaningfully different? >> that is a good question. the main difference is we will have a different president. the last two years have been incredibly volatile and negative for em, mostly because of this misguided trade war. i am not saying china is an angel, but the way mr. trump
approached it was not the best way. a bilateral approach to me is second-best. it is better for mr. biden to get a multilateral approach than in some ways isolate china. i think it is an end to the tit-for-tat trade wars. we are going to see another stimulus from the ecb. the fed is still printing dollars. bank of england -- everywhere around the world, the liquidity story is there. that is positive for emerging markets. that is what is different now than pre-pandemic. caroline: global head of currency strategy at brown brothers. might see moree fiscal stimulus come from the u.s. at some point. joe: maybe. let's take what we can get. [laughter] maybe nothing extra, but at