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The impact of the COVID-19 health and economic crisis is acutely more severe in emerging markets. What will the long-term impact of this be, and could the Renminbi emerge as a safe-haven currency?
View Patrick’s presentation slides[vc_quotes layout=”accordion” quotes=”%5B%7B%22name%22%3A%22Patrick%20Zweifel%22%2C%22job_role%22%3A%22Chief%20economist%2C%20Pictet%20(Switzerland)%22%2C%22content%22%3A%22Patrick%20Zweifel%20joined%20Pictet%20in%201997%20and%20is%20chief%20economist%20at%20Pictet%20Asset%20Management.%5CnBefore%20assuming%20his%20current%20position%20in%202009%2C%20he%20was%20head%20of%20macro%20research%20at%20Pictet%20Private%20Wealth%20Management.%20In%20particular%2C%20he%20had%20economic%20research%20responsibility%20for%20emerging%20markets%20and%20for%20the%20development%20of%20quantitative%20models%20on%20major%20asset%20classes%2C%20primarily%20foreign%20exchange%20models.%5CnBefore%20joining%20Pictet%20he%20was%20a%20research%20assistant%20in%20econometrics%20and%20monetary%20theory%20and%20worked%20on%20international%20research%20projects%20for%20the%20World%20Bank%20and%20the%20European%20Union.%5CnHe%20holds%20a%20PhD%20in%20Econometrics%20from%20the%20University%20of%20Lausanne.%5Cn%22%2C%22image%22%3A%2231911%22%2C%22linkedin%22%3A%22https%3A%2F%2Fwww.linkedin.com%2Fin%2Fpatrick-zweifel-pam%2F%3ForiginalSubdomain%3Dch%22%7D%5D” title=”Speaker” el_class=””][vc_quotes layout=”accordion” quotes=”%5B%7B%22name%22%3A%22Colin%20Tate%22%2C%22job_role%22%3A%22Chief%20executive%2C%20Conexus%20Financial%20(Australia)%22%2C%22content%22%3A%22Colin%20Tate%20has%20been%20an%20investment%20industry%20media%20publisher%20and%20conference%20producer%20since%201996.%20In%20his%20media%20career%2C%20Tate%20has%20launched%20and%20overseen%20dozens%20of%20print%20and%20electronic%20publications.%20He%20is%20the%20chief%20executive%20and%20major%20shareholder%20of%20Conexus%20Financial%2C%20which%20was%20formed%20in%202005%2C%20and%20is%20headquartered%20in%20Sydney%2C%20Australia.%20The%20company%20stages%20more%20than%2020%20conferences%20and%20events%20each%20year%20%E2%80%93%20in%20London%2C%20New%20York%2C%20San%20Francisco%2C%20Los%20Angeles%2C%20Amsterdam%2C%20Beijing%2C%20Sydney%20and%20Melbourne%20%E2%80%93%20and%20publishes%20five%20media%20brands%2C%20including%20the%20global%20website%20and%20strategy%20newsletter%20for%20global%20institutional%20investors%20conexust1f.flywheelstaging.com.%20One%20of%20the%20company%E2%80%99s%20signature%20events%20is%20the%20bi-annual%20Fiduciary%20Investors%20Symposium.%20Conexus%20Financial%E2%80%99s%20events%20aim%20to%20place%20the%20responsibilities%20of%20investors%20in%20wider%20societal%2C%20and%20political%20contexts%2C%20as%20well%20as%20promote%20the%20long-term%20stability%20of%20markets%20and%20sustainable%20retirement%20incomes.%20Tate%20served%20for%20seven%20years%20on%20the%20board%20of%20Australia%E2%80%99s%20most%20high%20profile%20homeless%20charity%2C%20The%20Wayside%20Chapel%3B%20and%20he%20has%20underwritten%20the%20welfare%20of%2060%2C000%20people%20in%2028%20villages%20throughout%20Uganda%20via%20The%20Hunger%20Project.%22%2C%22image%22%3A%2231893%22%2C%22linkedin%22%3A%22https%3A%2F%2Fwww.linkedin.com%2Fin%2Fcolin-tate-839a5a181%2F%22%7D%5D” title=”Moderator” el_class=””][vc_empty_space height=”10px”]
Key takeaways
Emerging markets are appealing for a number of reasons:
fiscal responses to COVID-19 have been appropriate, striking a good balance between necessity and affordability e.g. 9 countries adopted QE to prevent dysfunctional markets
75 per cent of emerging markets offer positive 10-year real yield on government bonds, in stark contrast to developed markets
The collapse in emerging markets was severe but since mid-April there has been evidence of a recovery pathway. India and Latin America are lagging behind (30 per cent below their January levels).
May trade figures already show some stabilisation (emerging markets are twice as sensitive to global trade as developed markets).
RNB is a safe haven currency which is becoming more influential and more international.
Globalisation has done so much to bring people out of poverty that we should continue to support it.
China can be considered separately from the rest of emerging markets during economic analysis. Some emerging market countries have controlled the virus well, others not so well, which illustrates the huge divergence between emerging markets.
Emerging market countries have more positive views on China than developed markets, perhaps in part due to views on human rights, however the economic fundamentals of China are strong. There is no way in the medium-term that you can avoid exposure to Chinese investments.
The Florida State Board of Administration has made some strategic moves to take advantage of opportunities in the dislocation, including in private equity, distressed debt and active listed equities.. But CIO, Ash Williams, is concerned about the underlying real economy.
Political regimes around the world are stuck in a series of dead-ends and despair. Most importantly, the China-US relationship has hit a brick wall as their fundamentally different values and interests clash. Deterrents and robust policy is the only way forward, says Stephen Kotkin, professor in history and international affairs, Princeton University.
Nobel prize winner Esther Duflo suggests institutional investors can help alleviate poverty by fostering new supply chains and looking beyond a country's credit rating. She said there is an "unacceptable" level of poverty amongst Africa Americans and Latinos who are keeping the US economy going but dying for it.
Global asset manager Robeco has found proactive stewardship triggers important changes in corporate behaviour. Chief executive Gilbert van Hassel urges FIS 2020 Digital delegates to do the same.
In a fireside chat, CIO of CalPERS Ben Meng talks about how the fund wants to use leverage to push deeper into private assets, while Ronald Wuijster, chief executive officer, APG Asset Management said the policy response has made taking advantage of buying opportunities difficult.
Investors should use stewardship to encourage purposeful companies that provide long-term value by meeting the needs of multiple stakeholders and helping improve society. But what is a purposeful company?
Understanding the two policy making camps in China - one which is concerned about debt and one which is worried about a slowdown in growth - is key to understanding China's position in the global economy, says professor of finance at Peking University, Michael Pettis.
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