How Coronavirus Will Affect Currency Markets (w/ Raoul Pal & Giovanni Pozzi)
RAOUL PAL: And you and I were chatting on email about China and the RMB, because that's one of the things is, how does the dollar play out into all of this? There's an argument-- and it's not clear, but there's an argument to the Euro could weaken as Europe itself has to take the fiscal strain. And there's a whole load of things that they need to do to try and stabilize their economy. But in China, they had a situation where the economy was shut down. So, there's no outflows and no inflows, and that's OK, because it's stable. As things change, what's your view there? Is the RMB at risk, or are you the other way around with this? GIOVANNI POZZI: I'm the other way around. In the short term, I can't guarantee that they will be able to keep it so stable if there is another route on the risky assets. But in general, I think there is already an evidence of the resilience that China has compared to the past. It's not an emerging market anymore. Let's face it. The portfolios are not enough diversified into Chinese assets, whether they're bonds or equities. They are experiencing inflows from the rebalancing of the global indexes, which are supporting those markets. And that's a lack that European and US markets don't have at the moment. And that will go on for some time. So, there's a number of reasons why I'm in the camp of thinking that the Renminbi will not devalue aggressively. RAOUL PAL: And what about the dollar overall? How do you see the set up there? Or do you think it's a mixed bag? Is it stronger against emerging markets and weaker against majors? What's your view, because it's a very mixed feed for everybody right now? GIOVANNI POZZI: It's true. And I don't take either side, because I think it's pretty uncertain. As far as emerging markets in general are concerned, I think in part they would benefit from the Chinese effect that I just talked about if that materializes. So, the diversification effect of the portfolios into different currencies and counter risks would be true, yes, for gold, for the Renminbi, but maybe for many other countries which now seem to be much more damaged, be it Brazil with is Real, be it Mexico with its Peso, or Norway with its Krone-- developed or developing. One of the consequences of the world being more globalized means this in my opinion-- reducing the importance of the dollar, which should help to keep the dollar more balanced and avoid the very real dangers of funding stress that you very frequently talk about, which are certainly there. The new world, the more globalized investor world might help in avoiding that stress.