The Covid-19 vaccines may be on their way to reviving the fortunes of two Latin American currencies.
The Mexican and Chilean pesos are in pole position to rebound as the vaccines are finally rolled out, according to a Bloomberg study of 12 emerging-market currencies measuring lockdown rates against vaccine coverage and relative valuations.
Latin American currencies in general were pummeled by the pandemic and the gradual weakening of the dollar since March has failed to reverse the damage. Now, Chile and Mexico have secured more of the vaccines than their emerging-market peers, after imposing some of the strictest lockdowns. That is fueling optimism for an economic revival.
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“Latin America is in a good position because the reopening has just started and there is more to go,” said Pierre-Yves Bareau, who oversees more than $49 billion as chief investment officer for emerging-market debt at JPMorgan Asset Management in London. “The impact of the vaccine is also more important compared with markets that have handled the virus better such as Asia.”
Chileapproved use of the Pfizer Inc.-BioNTech SE vaccine last week, and is expected to start administering doses in the next few days. Mexico willbegin doing so on Thursday, its Deputy Health Minister Hugo Lopez-Gatell said.
Still, there is no guarantee on how quickly all the vaccines will arrive, their effectiveness or even if some will make it to the market after stringent testing. Moreover, some countries may struggle to comply with conditions required to distribute the jabs.
Gains in the Mexican peso may also be limited after the recent rally left it with a neutral valuation, with a real effective exchange rate of 0.4% above the five-year average. The Chilean peso is undervalued by 5.6%.
While the two pesos came out on top in the Bloomberg analysis, the Malaysian ringgit may fare less well after the Southeast Asian nation procured comparatively fewer vaccine doses.
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The study identified some clear outliers, too. While the Czech Republic has the highest doses ordered as a percentage of population, the relatively laxer restrictions and overvalued REER makes it less likely for the koruna to outperform. China ranks at the bottom in terms of vaccine distribution because of a lack of information for its domestic vaccine doses.
NOTE: Marcus Wong is an emerging-market strategist at Bloomberg News. The observations he makes are his own and not intended as investment advice.
— With assistance by George Lei
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