Until relatively recently, it seemed that Asia had a better grip on the pandemic than the rest of the world. However, as countries across the globe move from containment and suppression towards vaccination and reopening, Asia risks falling behind Europe and North America.
While they struggled to contain the initial outbreak of Covid-19, the US and the UK were the first major economies to start widely vaccinating their populations and they are reaping the benefits of relaxed social distancing measures as their economic activity rebounds. Having initially got off to slow starts, Europe and Canada are now also on a very similar trajectory.
In contrast, Asia has increasingly come to be regarded as a global vaccination laggard due to combinations of still-strong suppression of Covid-19 cases, related vaccine hesitancy, and lack of vaccine supplies. However, this broad-brush-stroke picture is increasingly unjustified, as clear divergences are emerging between markets in the region.
On one side are the two major economies, China and Japan. In both, the vaccination picture is beginning to look more encouraging. China, in particular, has been ramping up its vaccination rate dramatically and, in recent weeks, has been vaccinating well over 1 per cent of its population per day.
If this speed can be sustained, it could conceivably vaccinate its entire population before the end of the year. And high coverage is likely to compensate for the fact that China’s vaccines are generally regarded as having relatively lower efficacy.
Even in China’s fully-recovered economy, this would be likely to benefit the consumer sector, which has lagged behind in the recovery.
In Japan, the much-delayed vaccination drive is also finally getting under way. Vaccination rates are steadily accelerating, although they still lag behind Europe and China, at just under 0.5 per cent of the population vaccinated per day. Here, too, vaccinating all adults before the end of the year is beginning to look achievable, and Covid-19 restrictions are likely to begin to be rolled back sooner.
On the other side are Asia’s smaller economies, where vaccination has generally been lagging, with just a few exceptions, such as Singapore and lately South Korea. While generalisations are always fraught with danger, it is helpful to split these into those where tourism is a big share of the economy, such as Thailand and the Philippines, and those where it is not, such as South Korea and Taiwan.
Starting with the latter, South Korea and Taiwan’s manufacturing and export-heavy economies have been doing well, driven by the rebound in global demand from reopening Western economies. They are likely to continue to do well, compensating for low vaccination rates by maintaining tight travel restrictions for some time to come. They do, however, risk outbreaks that could interrupt their export sectors, let alone the local service economies.
For the smaller tourism-heavy economies, the situation is more difficult. As long as they keep their borders closed to compensate for the lack of vaccinations, their economies will struggle, even if they can keep their domestic Covid-19 situations under control.
They would probably not even benefit from any easing of travel restrictions by the countries from where their visitors originate. For now, there is no timeline for when this situation may improve.
Despite Asia’s disappointing vaccination progress, it’s worth bearing in mind that, overall, the region has suffered less during the pandemic, so there is also less of a recovery to be expected in markets. Still, Asian equity markets as a whole began to lag behind the US and Europe as vaccinations commenced there, although admittedly there have been other reasons.
Markets should be cheered somewhat by the fact that the region’s largest economies like China and Japan are now pushing ahead strongly with their vaccination drives – a factor which could outweigh ongoing difficulties across many smaller markets.
For Japanese equities in particular, the next few quarters should be bright if the examples of Europe and the US at similar vaccination stages are anything to go by. For China, headwinds from regulatory tightening may matter more in the short term but, eventually, vaccination success should support growth and ultimately bolster stock prices.
Patrik Schowitz is a global multi-asset strategist at JP Morgan Asset Management