There was an interesting piece on Bloomberg mid week that countered the idea of a ‘V’ or ‘U’ shaped recovery with the idea of a ‘K’ shaped recovery. In essence this is highlighting that there is a two tier recovery that is taking place. The ‘two pathway’ system has a higher rate of recovery for the richer nations than the poorer nations.
The stocks and currencies from wealthier nations are outperforming their poorer emerging market peers during the COVID-19 crisis. It is a classic case of the ‘haves’ vs the ‘have nots’ with the potential divergence to increase if COVID-19 is not contained equally.
A Bloomberg study of 17 emerging markets found a correlation of 42% between GDP per capita and stock performance since the risk sell off began in January of this year. The correlation between GDP per capita and currency returns was 31%. Take a look at this Bloomberg chart below which illustrates the point:
The rich and poor divide is most pronounced in Asia. The stock returns from the four economies per capita GDP above $10000 last year (China, S.Korea, Taiwan and Malaysia) have been 20% above that of the nations which fall below that level including India, Indonesia. Philippines, and Thailand. Part of this is also the presence of more tech companies in the first list of countries it has also been the fact that the more affluent countries have had the benefit of advanced technologies, strong governance and a wider range of policy options to cope with the crisis.