Financial markets around the world are waking up to the risks of another coronavirus flare-up.
Asian markets, hit by rising falls from Japan to India, have have performed among their global counterparts since the beginning of March, just when they would benefit from an acceleration in global recovery. Currencies of countries infected by the virus have performed less well than those where vaccinations are advancing. And now the anxiety is starting to spread, with recovery industries under pressure and US stocks slipping for two consecutive days.
“Markets that have become too comfortable with trade reopening and weakened social constraints could be at risk with any Covid growth and variants,” said Paul Sandhu, head of multi-Asset Quantity Solutions Asia Pacific by BNP Paribas Asset Management. “Markets with a high vaccination rate circumvent the downside risk somewhat.”
The World Health Organization said On Tuesday, cases are rising in all regions except Europe, with the largest increase last week in Asia, as India has the largest wave. Japan has come closer to declaring a viral emergency as infections spread to its two largest and most economically important urban areas, Tokyo and Osaka, while health authorities in Toronto will order workplaces in Canada’s largest city to close if they confirm more than five cases.
The MSCI AC world index fell every day this week after closing at a record high last Friday. Investors are facing the latest wave of the virus, with valuations significantly higher than before the pandemic.
The revival of viruses “can test global assets, except those where vaccination is very advanced,” said Joshua Crabb, a senior finance manager at Robeco in Hong Kong. “It is clear that new strains are more virulent and that it may require shots for those who have already been vaccinated.”
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As for the currency front, investors this week sought refuge such as the Japanese yen and Swiss franc, rewarding those with better records of the outbreak, such as the Israeli shekel and the Taiwanese dollar. The Indian rupee was the latest wave in Asia infections threaten an emerging economic revival.
Shares in Asia were expected to fall the most in about a month on Wednesday, and U.S. futures contracted as investors eased the potential economic impact of the latest virus push. Japanese equities were among the worst performers.
“The revival of viruses in India and Japan has apparently been the biggest driver for the sale of shares in Asia and the Pacific today,” said Margaret Yang, a strategist at DailyFX. “It seems that the trade in reflection has taken a break and made way for safe havens and defensive names.”
– With help by Garfield Clinton Reynolds and Ishika Mookerjee