Vietnam PM Nguyen Xuan Phuc has initiated a 15-day nationwide lock-down (social distancing, essential needs trips, suspension of public transportation, inter-province and international travel restrictions).
At face value, there is nothing unusual in the context of similar policies worldwide. Indeed, Vietnam has extensively used contact tracing, quarantine and social distancing (eg school closures), as well as its 2003 SARS experience and authoritarian tools to enforce policies.
However, what makes this noteworthy is that, according to official data tracked by JHU CSSE, there were merely 204 cases (149 active, 55 recovered, 0 deaths), as of 30 March, out of a population of 96m. This suggests Vietnam has, thus far, extraordinarily successfully responded to Covid-19.
Therefore, this lock-down prompts us to ask the following questions:
(1) Should the consensus we see forming among EM investors that China and some of its Asian neighbours were "first-in and first-out" of the Covid-19 crisis reconsider this view?
(2) Is the official data on infections a suitable basis for judging the extent of disruption related to Covid-19, either because the official data may be incomplete or inaccurate, or because Covid-19 is so contagious that even a flattening of the infections curve is not a signal of a return to economic normality (at least, until a vaccine is developed)?
(3) For countries without Vietnam or China's authoritarian tools or recent pandemic response experience, are the risks far more acute than consensus is currently considering, eg India?
We are more cautious than many of the EM and FM investors we have recently engaged with on how China may not be emerging from the Covid-19 crisis in a manner that matches its very public displays of victory (eg the celebration of the end of the temporary hospital effort in Wuhan) and international assistance (eg Italy, Spain). We believe this consensus view may be very sensitive to any deterioration in official data on China infections (the total number of Covid-19 cases has been remarkably stable in the month of March (up less than 4%).
This latest action in Vietnam reinforces our view that there is no island of immunity in the current global crisis (driven by Covid-19, oil price war, trade war, capital flight, insufficient global coordination) which particularly afflicts emerging and frontier markets (where urban population density, informal workforce, poor healthcare often outweigh youthful demographics in countering Covid-19, and constraints on fiscal, monetary and FX policy often inhibit the economic response).
If the risks resulting from this crisis are universal and unquantifiable, then the resulting equity strategy recommendation is actually to make no changes in portfolios in an EM public equity mandate.
Related Reading on Covid-19
EM-FM Equity Strategy: The courage to change nothing, 26 March 2020
Coronavirus: Commodity prices hit as fears grow more global, 3 February 2020
Coronavirus: UAE case a warning for global tourism, 29 January 2020