Emerging-Market Investors Start to Put Vote Jitters Behind Them

Emerging-market investors are beginning to factor in a victory for Joe Biden in next month’s election, a likely boon for stocks and bonds.

Citigroup said the worst is over for developing-nation assets and Morgan Stanley is betting volatility will ease as there’s more clarity on the outcome of the vote. On Friday, Biden’s chances of winning the Electoral College rose to a record 85.1%, according to the latest run of poll aggregator FiveThirtyEight’s election forecasting model.

“A Biden victory should be good news for emerging markets if it means a multilateral approach, a more rules-based approach to international relations,” said Marcelo Carvalho, head of global emerging markets research at BNP Paribas in London. “That should reduce policy uncertainty.”

Emerging-market bonds, stocks rise as Biden leads in U.S. polls

MSCI Inc.’s gauge of emerging-nation equities reached its highest since January on Friday, poised for its best week in 18. Dollar-denominated government bonds, which slumped as much as 17% earlier this year, are about to post their first weekly gain since early September, a Bloomberg Barclays index shows.

It’s a sharp contrast to the risk aversion of the past month, when rising infections of Covid-19 and an increasingly tense election campaign pushed up volatility and weighed on sentiment. Confidence is rising now that investors feel they have more clarity on the outcome of the Nov. 3 vote, said Eric Baurmeister, head of emerging-market debt at Morgan Stanley Investment Mgmt Inc. in New York.

“The thing markets hate the most is uncertainty,” Baurmeister said in an interview. “Risk assets have definitely responded positively to the lead of Biden and Harris increasing.”

A weaker dollar and better stimulus prospects if there is a Democratic sweep of the presidency and both houses of Congress would also boost stocks, Morgan Stanley equity strategist Jonathan Garner wrote in a note.

READ: Citi Says Worst of U.S. Election Risk in EM May Already Be Over

“U.S. election risk seems to be abating,” Citigroup Global Markets strategists including Eric Ollom, Donato Guarino and Ayoti Mittra wrote in a note. “Perhaps this is the time to call the bottom.”

— With assistance by Payne Lubbers

Source Article