Most US policy makers fold under pressure in introducing containment measures
The grim realities of the contagion have caught up with even the most ardent pandemic deniers in the US with governors of some key states like Florida and Georgia which had kept their states open for business folding under pressure, closely following Mr. Trump whom has also dramatically changed his optimistic tone in the past two weeks. With monetary and fiscal relief measures having come and gone, the question on investors’ mind is how long these lockdown measures are needed to remain in place before the infection curve flattens out. In the US where state policies vary and its private medical care is far more fragmented, we continue to feel that nationwide containment programs will prove far more challenging than those in Europe.
With some positive signs of falling infection rates and deaths emerging from Italy which went into a nationwide lockdown on 7th of March, hopes are high that surging infections in respective Spain, France and UK where more stringent lock-down policies went into effect by a week or so, one after another, could also start to see similar results by May at the latest. Indeed, there is a consensus forming among top epidemiologist that as long as the Covid-19 virus doesn’t mutate to a more malicious strain and lock-downs remain in place, death rates in the Western world could be flattened by the summer months. Moreover, reports of economic activity from China which is easing its stringent lock-down policies also suggests that at least domestic demand is showing signs of recovery although its exports have obviously nowhere to go now.
Commodity prices could soar as the virus rages through poorer nations
However, as we noted in our last week’s publication, the contagion which started mainly in wealthier nations is now raging through the third world countries in Asia, Africa and South America. With generally poor health care facilities and lack of testing capacities unlikely to reveal the true extend of the infection rates in those countries, we suspect financial markets will remain focused mainly on the progress of the containment programs in Europe and the US and the devastating impact of the virus on poorer nations will remain a secondary concern for the time being.
However, we fear that what began as a demand shock from economic shut-downs in richer countries could transpire to a supply-shock as poorer ones follow. This could leave food and other commodity supplies to the West facing potential disruptions. Having seen commodity prices slump in the first wave of the contagion, they could surge in the second wave with governments scrambling to stock-pile food and other essential goods, not too dissimilar to what we are currently seeing for face masks and ventilators.
Countries like Vietnam have already started stockpiling rice due to India’s recent shutdown, further complicating matters as climate change had already led to poor harvests. Reported shortages in condoms due to Malaysia closing its doors and shutting down some rubber plantations is another small example of what we could be facing in the months to come. Needless to add, prospects of famine in poorer countries could also lead to political instability and regional conflicts.
Japan remains the only G7 country not impose a lock-down
Moving briefly onto our own market in Japan which has been clearly overshadowed by global events, we had hoped that the abandonment of plans for staging the summer Olympics would free the Japanese government to concentrate on its own virus containment program. Although local governors in Tokyo and other cities have urged their people to stay at home, Prime Minister Abe has refused to call for a state of emergency despite surging infections in the country, focusing more on fiscal stimulus and keeping the economy afloat as he has continued to point out that although the situation is severe the numbers of infected have not reached levels where a nationwide shutdown is required.
However, with less than 40,000 of Japan’s 125mn population having been tested thus far, of which nearly 3,500 have been confirmed with Covid-19, clearly the government has not gone far enough in its detection program with number of daily tests only recently rising above 4,000. This is most alarming given that Japan has the highest median age of 48 years among developed nations, even higher than that of Italy which has seen a high fatality rate among its elderly and medical workers which have fallen sick from the virus.
Thankfully, many of Japan’s retail and entertainment outlets have taken matters in their own hands by shutting their doors while talks of reopening schools seem to have faded as parents have become increasingly concerned about Abe’s continued complacent stance. Come what may, we believe a nationwide lockdown is not only inevitable but it does seem likely that Japan will be the last of any G7 country to come out of this crisis in the coming months.