Morgan Stanley Is Betting Big on Emerging Market Currencies and Sovereign Debt

UTC by Bhushan Akolkar · 3 min read
Morgan Stanley Is Betting Big on Emerging Market Currencies and Sovereign Debt
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The investment banking giant said it’s time to go “all-in on EM” and expects them to do better during the global economic recovery post the release of the coronavirus vaccine.

The dynamics of the global economy have shifted with the coronavirus pandemic and Morgan Stanley (NYSE: MS) is having its eyes on the emerging market group. The New York-based investment banking giant expects a year-end rally in emerging market currencies and sovereign debts.

The statement from Morgan Stanley analysts comes just a week before the U.S. Presidential Elections. Also, the markets are showing more volatility as stimulus talks in the U.S. haven’t reached fruition. At the same time, the market’s are preparing for Joe Biden’s win as a majority of the polling trackers indicate so. Referring to a Democratic President win, Morgan Stanley analysts led by James Lord said:

“The market appears to be underpricing the possibility of a Blue sweep. With limited time left and many votes already cast, we think the opportunity for the polls or events to meaningfully shift the narrative is limited. We stress that, while the outcome of the election of course remains uncertain, for those who wish to position for a Democratic win, risk/reward for EM looks compelling especially in the case of a united government, which could result in sizeable stimulus and a more consistent set of economic policies.”

Morgan Stanley is also increasing its exposure to emerging market currencies like Brazil’s Real, Mexico’s Peso, and Colombia’s Peso. Besides, it has also entered long positions for Russia’s Rouble and the South African Rand.

For credit positions, the investment bank has also boosted exposure to Brazil, Ghana, Egypt, Ukraine, South Africa, and Mexico’s Pemex.

Morgan Stabley: Emerging Market Category Has Higher Chances of Faster Recovery

Morgan Stanley analysts noted that they see fewer political risks going ahead. They further added that its seasonally a strong part of the year for the emerging markets. Thus, it’s time to go “all-in on EM,” said the investment bank.

Moreover, the bank said that as the vaccine comes out the emerging markets will participate “more fully” in the global growth recovery. The analysts added:

“Emerging markets will participate more fully in recovering global growth if an effective vaccine is distributed. “Should this occur, we could see some rotation in investor positioning away from areas of the global economy that have already recovered (like China) to other EMs”.

As per Morgan Stanley, the emerging market shares recorded massive inflows to a tune of $2.7 billion over the last six weeks. At the same time, the emerging market debt also recorded a strong inflow of $2.2 billion.

Interestingly, Morgan Stanley’s predictions are contrasting the predictions by other global institutions. The International Monetary Fund (IMF) said that recovery prospects have been deteriorating for emerging markets. The Institute of International Finance also noted that emerging markets are seeing divergent capital flows. It noted that the emerging markets are heading for an uneven recovery.

Among developing economies outside China, India might be heading for a deeper recession than expected.

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Bhushan Akolkar

Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.

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