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

"Emerging currencies have rebounded since November with improved risk appetite," said Jasper Rasmussen and Andreas Steno Larsen, strategists at Nordea. If over the whole of 2020, the latter 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 had a good run in recent months, gaining nearly 10% against the dollar since September, supported by the US elections, vaccine news, a weaker dollar and a return of flows to local markets in the last two months of the year," says George Saravelos, a strategist at Deutsche Bank. According to an index by Nordea, the ten major emerging currencies recovered five-sixths of the decline in early 2021.

Necessary rebound in growth

Most strategists are confident in continued appreciation. "With fiscal and monetary easing in developed countries, an abundance of dollar liquidity, prospects for increased global trade, and a strong rebound in emerging market growth, this increase is expected to continue in 2021," says Nordea.

Barclays strategists  also anticipate a still favorable wind, especially for high-beta currencies, which remain undervalued. Among them are 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 4.7% in 2020.

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

selectivity

One of the major issues for emerging markets is their ability to vaccinate their population. This is one of the reasons why some strategists are being selective, such as Deutsche Bank : "We remain generally constructive on the asset class for 2021 due to the weakness of the dollar, post-Covid reflation and a structural underweight of emerging assets in portfolios. But we are tactically more cautious. We expect the first quarter to be more discriminatory than the fourth quarter of 2020 was."

The issue of vaccination depends on the ability to return to the level of gross domestic product (GDP) before the coronavirus crisis and a sustained pace of growth. "The return to normality will be very uneven due to divergent 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 the latter, who are betting on the ruble and the Turkish lira and abandoning the rand and the Mexican peso, the Democratic victory in the Senate has also introduced an additional risk for emerging markets that are particularly sensitive to the trajectory of US rates.

In its 2021 outlook for emerging markets, Societe Generale CIB recalled that the long-term bearish cycle of emerging currencies was not over. It would have simply been shifted.