Vaccines Could Change Fortunes of These Two Emerging Currencies

(Bloomberg) - The Covid-19 vaccines could be on the way to resuscitating the fate of two Latin American currencies.
The Mexican and Chilean pesos are in pole position to bounce back on the final vaccine rollout. That's according to a Bloomberg study of 12 emerging market currencies that measured lockout rates based on vaccine coverage and relative valuations.
Latin American currencies in general have been hit by the pandemic, and the gradual weakening of the dollar since March has not undone the damage. Now Chile and Mexico have received more vaccines than their emerging market counterparts after imposing some of the toughest bans. This fuels optimism for an economic recovery.
Read: More than 2.4 million people have already received Covid vaccines
"Latin America is in a good position as the reopening has only just begun and more remains to be done," said Pierre-Yves Bareau, who oversees more than $ 49 billion as chief investment officer, emerging market debt at JPMorgan Asset Management in London . "The effect of the vaccine is also more important compared to markets like Asia, which have handled the virus better."
Chile approved the use of the Pfizer Inc.-BioNTech SE vaccine last week and is expected to begin dosed administration in the next few days. Mexico will do so on Thursday, said Deputy Health Minister Hugo Lopez-Gatell.
However, there is no guarantee how quickly all vaccines will arrive, how effective they will be, or whether some will hit the market after rigorous testing. In addition, some countries may have difficulty maintaining the conditions necessary for the shock to be distributed.
Gains in the Mexican peso could also be limited after the recent rally left 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 Bloomberg's analysis, the Malaysian Ringgit could do less well after the Southeast Asian nation procured comparatively fewer vaccine doses.
Read: The Best And Worst Places In Covid: The US Is Down In Ranking
The study also identified some clear outliers. While the Czech Republic has the highest ordered doses as a percentage of the population, the relatively loose restrictions and overrated REER make the krone less likely to outperform. In terms of vaccine distribution, China leads the way due to a lack of information on domestic vaccine doses.
NOTE: Marcus Wong is an emerging markets strategist at Bloomberg News. The observations he makes are his own and are not intended as investment advice.
(Adds the latest update on vaccination in Mexico in the fifth paragraph.)
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