THE EMERGING PARADOX

The easing of the lockdowns is proceeding slowly but smoothly so far. Or is it? The western world has not suffered another wave of Covid-19 contagion.

Highlights:

  • New Covid-19 cases have picked up – particularly in EM countries – but global markets are celebrating the reopening of the world economy.
  • We see three main forces behind the latest spell of optimism: (exaggerated) hopes of a vaccinal  reakthrough; promises of further policy action (Fed); the German-French push for the European Recovery Fund to operate fiscal transfers (the ‘frugal four’ have a less exciting plan).
  • The King dollar – a key piece of the global financial puzzle, and often a barometer of investor sentiment – has started to pull back. EM currencies (one of the most cyclical asset class) are showing signs of life; paradoxically this is happening right as Covid-19 propagates in the EM world and President Trump is toughening up his stance against China again.
  • A few days do not make a trend; our cautious views about the recovery suggest it is premature to switch to highly cyclical assets. Our guarded pro-risk stance also applies to EM investment.

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THE EMERGING PARADOX

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