Asian troubles with the pandemic

The Asian recovery is being slowed by the re-emergence of Covid-19 coupled with central bank and government action to prevent economies overheating. However, infection rates remain lower than in the West.

| 5 min read

In January, Asia seemed well set to lead the recovery from Covid-19 this year. Easy US money policy, with plenty of dollars around, growing levels of US and European demand for Asian exports and Asia's relative success at seeing off the first wave of the pandemic in 2020 led to optimism about the continent’s participation in the generally forecast global recovery.

There has been money made in various Asian markets, as expected, but there have also been doubts and disappointments along the way. China has continued to report success against the virus and has good order books for its manufacturers. Its economy has surpassed pre-pandemic levels, but the 2021 recovery is being slowed by central bank and government action.

The stock market has been sluggish as a result. The poster countries of how to tackle the first wave of the virus -Taiwan and Singapore – have recently experienced modest relapses. They have introduced new restrictions to prevent a serious outbreak, just when other parts of the world are coming out of a winter of strict anti-pandemic measures. The twin stories of less stimulus and some hesitancy over the handling Covid-19 in these countries have led to some down days and some slower overall progress of their markets after a good start to the year.

Asian data good overall

If we rely on the official world figures for cases and deaths from the virus, Asia still has proportionately much less of a problem than the West. Whilst India is the country with the third largest number of cases after the US and EU, its declared case and death rate per million people is still way below that of the European and American economies.

The nasty recent outbreak, which has stretched health services and led to more deaths, now seems to be abating with recent figures showing a downtrend. The rest of Asia, including highly-populated China and Japan, are well down the lists of cases and deaths.

The big four – the EU, the US, India and Brazil – between them account for 64% of the declared cases worldwide and 57% of the deaths, leaving most of Asia less damaged by the infection. Singapore and Taiwan, with between six and eight deaths per million people, contrast with Hungary at 3,089 or Belgium at 2,146 at the other end of the spectrum.

Singapore, Taiwan and Japan perhaps became complacent about their success in containing the pandemic in its early days. Recently, Singapore discovered an outbreak in Changi airport from airport workers mixing with travellers arriving from Covid-19-affected places. Taiwan traces its recent outbreak to Chinese pilots passing it on to people who then visited night clubs that helped it spread.

Japan has ten prefectures in emergency lockdowns and is now seeing some decline in cases. The Japanese people and the government's health advisers do not want the Olympics to take place there in late July, but the Olympic Committee is sticking to its view that it can and should hold a socially-distanced and slimmed-down games as planned. 10,000 of the 80,000 volunteers to help host the games are rumoured to have walked away from the idea.

Vaccine shortage needs resolving

Most of Asia relied on its ability to lockdown and to control the spread of the infection. There is an almost universal shortage of vaccines, as countries now scramble to buy in more to offer more protection to the vulnerable. Taiwan still hopes to produce its own by July whilst Singapore, with more already vaccinated, is looking to the US to help with supplies.

Meanwhile, China has determined on a policy of prudence. The government and Central Bank are seeking to rein in credit. They particularly wish to discourage more property borrowing and wish to reduce excessive leverage. They do not want to adopt zero-interest-rate or money-creation programmes to offer more stimulus in the way the US has been doing, and wish to contain the inflation which has hit their supply chains with big rises in raw materials in items such as steel, energy and copper.

In April M2 money fell back to an annual growth rate of around 8%. The prime loan rate remains at 3.8% where it has rested since April 2020. New aggregate financing was well down in April on previous months. Consumers are also a bit constrained. The government's anti-corruption drive puts some off ostentatious spending for fear of questions being asked. Less easy credit and a policy that now allows some bankruptcies to take place to try to keep the others honest reels in excesses.

The container port of Yantian in Shenzen, which usually moves 100 ships a week, has been disrupted by an outbreak of Covid-19. Shipping rates are still very elevated, though they have come off the April peaks brought on by the Suez Canal blockage. Chinese exporters are so far absorbing some of their supply-chain cost pressures and taking it on margins as they wish to stay competitive.

Overall, it means China is helping the world to more stability and offsetting a bit of the massive US stimulus. Asia should enjoy a better second half as the virus comes under better control. The best thing in the present figures is signs we have for the time being seen peak new cases. Stock markets should respond more favourably when the virus does subside.

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Asian troubles with the pandemic

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