(Bloomberg) — The delta variant of the coronavirus may herald a bout of weakness for markets across the globe, with few analysts predicting a swift rebound as tighter curbs on movements cloud the growth outlook.
The MSCI Asean Index of equities headed for its weakest close in seven months, while Indonesia’s rupiah and the Thai baht slid to multi-month lows. Renewed lockdowns prolonged declines for the Australian dollar and the South African rand, which is this month’s worst performer among emerging-market currencies.
Risk assets are contending with a reversal in fortunes as the spread of the more infectious delta strain coincides with growing expectations for the Federal Reserve to start withdrawing stimulus. The transmission of the virus from Australia to Indonesia is raising fears that the nascent global growth recovery may be derailed.
“We might justifiably ask whether investors should question the consensus of a return to anything that resembles pre-Covid normality, or at the very least, whether we might need to endure rolling and haphazard restrictions that will last for years,” Viktor Shvets, an analyst at Macquarie Capital Ltd. in Hong Kong, wrote in a note. “The probability of a Black Swan event is rising.”
Here’s a look at what investors and strategists are saying about the implications of the delta strain on the various asset classes:
Gary Dugan, chief executive officer at the Global CIO Office in Singapore:“The U.K. has shown that the variant is not such a health challenge if people have been vaccinated. We are concerned that Australasia and the smaller markets in Asean could continue to be impacted. We remain cautious on Asean equities. Watching for any sharp increase in Covid cases in Asean”Kelvin Wong, an analyst at CMC Markets (Singapore) Pte.:“Tactically, it is likely to be more of a rotation play that may last into the upcoming third quarter where high-quality technology stocks may outperform over cyclicals”“Hence for Southeast Asian equities that tends to be heavily weighted toward cyclical/financials and the external sector such as tourism are likely to underperform, for example Singapore’s Straits Times Index”“The major key support to watch on the STI will be at 2,950/2,920 which also coincides with the 200-day moving average”
Alan Richardson, a senior portfolio manager at Samsung Asset Management (HK) Ltd.:
“It’s a speed bump that could slow the speed of the recovery but doesn’t change the direction to a post-Covid economy. The delta variant should increase the urgency for countries to reach three-quarters immunization”Paul Mackel, global head of FX research at HSBC Holdings Plc in Hong Kong:Market is watching closely the recent Covid resurgence as it has caused short-term depreciation of some currencies“But the elephant in the room is whether the dollar has bottomed or not” and “it’s not yet. But if the dollar is indeed getting stronger and the Fed is becoming more hawkish, it could challenge the outlook of some Asian currencies”The Thai baht is on radar as “it is very sensitive to current account flows and tourism flow”
Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd.:
Main worries include concerns about the delta variant as a segue to a more virulent and contagious mutation, a higher bar to achieve herd immunity and a resulting longer time frame to achieve herd immunity“The world may be bogged down by rolling setbacks in terms of reversion to normal. All of which not only disrupt and delay a proper and full recovery, but also significantly increase the debt burden from the health care and fiscal response, which in turn will deepen and aggravate already accentuated inequalities within and across economies”
(Adds global markets context in first and second paragraphs.)
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