GRAPHIC-A 2021 vision: what every fund manager is buying (or selling)

By Marc Jones and Sujata Rao

LONDON, Jan 4 (Reuters) – Dump the dollar! Buy emerging markets! Stay sustainable! These are among the consensus trades investment banks and asset managers reckon will dominate financial markets in 2021.

Vaccines will – hopefully – make 2021 the year of recovery from the COVID-19 pandemic, which has upended some sectors and reinforced the dominance of others.

Here are five trades the world’s biggest investment houses seem to agree on:

1/ THE MIGHTY (DOLLAR) FALLING

COVID-19 ended a decade of dollar strength, and expectations are for 2021 to bring more greenback pitfalls.

BofA’s December investor survey showed ‘shorting’ the dollar was the second most crowded trade. Another gauge – U.S. Commodity Futures Trading Commission data – shows $30 billion in net dollar shorts, swinging from last December’s $17 billion net long.

The reasoning, says Peter Fitzgerald, chief investment officer for multi-asset and macro at Aviva Investors, is that no central bank can “out-dove the Fed”.

In other words, when the Federal Reserve cut interest rates near 0%, it kicked away the dollar’s yield advantage over peers. And it still has room to ease policy.

President Donald Trump’s imminent exit should also reduce trade and political tensions, which were dollar-supportive.

How much and for how long will the dollar fall? Analysts polled by Reuters predict weakness to endure until mid-2021, capped by COVID-19 uncertainty.

But asset manager PIMCO notes dollar declines are fastest after deep recessions, with five instances of 8%-10% annual depreciations recorded between 2003 and 2018.

Vaccines and rebounding economies will “hasten the dollar’s fall from grace”, PIMCO predicted.

-Dollar bears emerge from hibernation as post-COVID normality beckons

-Is a post-COVID currency war coming?

2/ RE-EMERGING MARKETS

With developing economies seen benefiting from recovering global trade, tourism and commodities, a weaker dollar and a more predictable White House, Morgan Stanley’s message is: “Gotta Buy EM All!”

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