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Covid pandemic remains the wildcard for the APAC financial markets

Markets are a little complacent about the elephant in the room, which is the resurgence of the delta coronavirus variant that is spreading around the world, forcing nations back into lockdown.

In fact, many countries in the Asia-Pacific region feel the hardest hit, despite the strict lockdown rules of the past.

These tactics included closing off borders to almost all foreigners, imposing strict quarantines on newcomers, and putting in place aggressive testing and tracking policies to catch any cases that slipped through the net.

The Delta variant is far more contagious, however, and the new outbreaks call into question the zero-covid strategies favored by China and Australia.

In Australia’s Covid hotspot New South Wales, the state of Sydney, authorities have announced that it has been reached a 50% vaccination rate could be enough to ease the state’s strict lockdown, a departure from the country’s earlier attempts to bring cases down to zero.

New South Wales has registered 344 new cases of Covid in the past 24 hours and the state’s prime minister expects the rise in new cases to continue.

Meanwhile, Australia’s Prime Minister Victoria has extended the Covid-19 lockdown in Melbourne for another seven days.

In China, where a handful of cases can lead to mass testing, a growing number of public health experts are now advocating mitigation rather than zero tolerance as the preferred approach, according to Huang Yanzhong, Senior Fellow on Global Health at the Council on Foreign.

That change to protocol comes as China’s coronavirus cases fell on Tuesday (Jan.

State media have described the current outbreak, which has sparked local bans, mass testing and travel restrictions, as the most dangerous since the virus emerged in downtown Wuhan.

Recalling when the pandemic spread and the Australian dollar benefited from the divergence in cases between Australia compared to other nations like the UK, the US and Europe, the question must be asked about the impact of a change in strategy.

The Asia-Pacific countries by and large had an incredibly successful year and a half responding to Covid with the zero-covid strategies.

However, these guidelines are challenged by the Delta variant, which is said to be between 60 and 200% more contagious than the original strain, which was first identified in Wuhan.

Hence, moving away from zero-covid approaches as the governments of these nations ultimately face the dilemma of opening up for the good of the world’s economy could hit currencies like the Aussie significantly.

This could be especially true in the face of a resurgent US dollar as the Federal Reserve turns to a far more restrictive course.

Australia is particularly vulnerable due to the country’s slow uptake of the vaccine.

As of Sunday, only 17% of Australia’s 25 million people were fully vaccinated.

Compared to the 58% vaccination of the population in the UK and where the number of rising cases has been falling rapidly lately, or the 50% in the US, it would be no surprise that Australia’s lack of immunity to deltas spread would not result in an exodus out of the AUD as risk aversion captures market sentiment.

For now, however, both China and Australia don’t seem to be dropping the zero strategy overnight, but at some point a transition to a mitigation approach will be a test phase for the financial markets invested in APAC countries.

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