With Covid-19 persisting and the inflation outlook uncertain, investors should tread cautiously
- Markets must adapt to the likelihood of the pandemic lasting years, and adjust growth expectations accordingly
- Inflation in the longer term will depend on whether the forces of ageing populations and globalisation are stronger than the impact of unprecedented monetary stimulus
The other is the pandemic, which is exacerbating the K-shaped recovery between those who have successfully contained the virus and those who are still struggling because of their inability to halt its spread or vaccinate a large swathe of the population to reach herd immunity.
So far, however, markets seem to be taking the worsening coronavirus situation in their stride. Even in India – the new epicentre of the crisis – the equity market has been tracking effectively sideways over the past month, and remains one of the more expensive in the region.
Investors may be taking comfort from the fact that the Indian economy has continued to chug along, with the latest PMI showing little damage caused by the virus resurgence. But, without a forceful response, the country risks long-term pain along with its short-term gains, with a prolonged public health crisis that delays the full economic recovery.
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What do we know so far about the Covid-19 variants?
It’s increasingly doubtful that vaccines alone can save the world from a protracted pandemic. After some careful number crunching – based on our current understanding of the virus, and vaccine efficacy and coverage – our research concludes disconcertingly that very few countries will be able to reach herd immunity by relying on a vaccine alone, and Covid-19 is likely to become endemic.
