April China & Asian Market Insight: Coronavirus - Beware of a second wave, the economic pains and beyond
AXA IM’s Senior Emerging Asia Economist, Aidan Yao, shares his latest macro views on China and Asian Market every month.
In this month’s video he talks about the periodical recess in the virus battle and the risks to watch as we look forward to a post-covid-19 world.
Please find the full script below:
Hello! Welcome to our monthly video series.
My name is Aidan Yao. I’m the Senior Emerging Asia Economist here at AXA Investment Managers.
After some epic declines, the global financial market has managed to bounce off their end-of-March lows.
Partly this reflects the improvement on the virus situation, with tightening controls in developed countries finally yielding some encouraging results. But more importantly we think it reflects the unprecedented response by global central banks and fiscal authorities to shore up investor confidence and provide some necessary backstop to global economies and financial markets.
However, despite getting through the first wave of the virus impact, we don’t think this is the time to lower the guard, for several reasons.
First, the experience of some Asian countries, such as China, Japan and Singapore, suggests that any premature relaxation of the virus controls could expose us to the risk of a second wave of infections. Even though the second wave may not be as intense as the first wave, it could be drawn-out and sporadic that keep the public on edge for an extended period of time.
Second, the economic costs of fighting COVID-19 are only starting to take shape. In China, the first quarter GDP contracted by a whopping 6.8% year on year, which makes the peak-to-trough decline almost 3 times the size of what we saw during the global financial crisis. This could be a harbinger of what is forthcoming in many developed economies.
Finally, beyond the immediate economic cost, the COVID-19 pandemic could have far-reaching ramifications for the global economic, social and political systems. Who is going to foot the bill for the unprecedented policy response? Will the ensuring global recession lead to further widening of income and wealth gaps? And will the latter exacerbate the populist political movements that we have seen in recent years?
These are important questions to ponder as we try to formulate the investment response for the post-COVID world. The fact that there are no easy answers to all these questions is, in and by itself, an uncomforting situation and a good reason to stay cautious.
Thank you and stay safe.