HSBC says Asia faces 'bumpy road' ahead as Covid cases remain high, but vaccine rollouts offer hope

• Asia's struggle against the coronavirus is far from over but an expected pickup in Covid vaccine distribution in the coming months may ease the situation, according to investment bank HSBC.
• Countries like India, Indonesia, Malaysia and Nepal have faced a sharp rise in cases recently while infection levels remain elevated in other places.
• HSBC predicted Asia, excluding Australia and New Zealand, will grow 6.6% year-on-year in 2021 — compared with a 0.9% contraction last year — and 4.6% in 2022.

Asia's struggle against the coronavirus is far from over but an expected pickup in Covid vaccine distribution in the coming months may ease the situation, according to investment bank HSBC.

India has been the worst-hit country this year, suffering from a devastating second wave where cases rose sharply between February and early May. Though the daily reported infection numbers have come down significantly from a peak of over 414,000 cases in a day, the South Asian nation is still reporting on average 50,000 cases a day.

Countries like Indonesia, Malaysia and Nepal have faced a sharp rise in cases recently while infection levels remain elevated in other places. Nations such as Singapore, South Korea, Japan and China have also faced pockets of outbreak lately.

"It's easy to think, or tempting to think, that we're through it all, but reality is, if you look at Asia ex-India, we're looking at record numbers of daily infections right now," Frederic Neumann, co-head of Asian economics research at HSBC, said Wednesday on CNBC's "Squawk Box Asia."

"There's still a terrible human toll in many parts of Southeast Asia and, actually, still in India," he said.

Delta variant

Experts say that the closely watched coronavirus mutation known as delta variant is partly responsible for the surge in new cases seen in many parts of the world. First discovered in India and now present in over 80 countries, delta is said to be more contagious than previous variants.

While it remains unclear if the variant is more lethal than previous strains, its increased transmissibility, particularly in environments with low inoculation and minimal social distancing, implies it will likely infect more people in absolute terms, according to analysts from political risk consultancy, Eurasia Group.

"Countries with younger populations and more humid climates could accordingly experience more severe outbreaks than previous waves, even if the proportions of young people with severe illness remain the same," the Eurasia Group analysts said in a recent note. They added that in many emerging markets there is a growing risk of overwhelmed health-care systems.

Asia is a considerable distance behind North America and Europe as far as vaccines are concerned. Data showed that just over 23% of the population has received at least one Covid vaccine dose, compared with over 40% or more in the other two regions.

"We are by no means through this," HSBC's Neumann said. "That means when we look into the third quarter, there's still a risk of at least pockets of disruptions coming through. We just need these vaccines. We need more supply. We need to roll them out."

Economic recovery

Neumann said that based on publicly available information, HSBC projects that a lot of Asian countries will not reach herd immunity until the beginning of 2022, at the earliest.

"That means, some of the restrictions remain in place, particularly on travel, and that means, unfortunately, still a little bit of a bumpy road for the next several months," he said.

When a country reaches herd immunity, it means the virus can no longer spread rapidly as most of the population will either be fully vaccinated or would have become immune through infections.

In a note, Neumann and other HSBC analysts said that they expect local demand growth in the region to pick up steam over the next six months. That is set to happen on the back of a sharp, expected uptick in vaccine distribution, they said.

Exports remain strong despite ongoing transportation disruptions and supply chain bottlenecks, according to the bank.

"The latter should slowly fade as demand recalibrates towards services and factories catch up on lost time. Still, the crunch has revealed that more investment in capacity is urgently needed – expect capex to soar as the region tip-toes out of the pandemic," the HSBC analysts wrote.

The investment bank predicted Asia, excluding Australia and New Zealand, will grow 6.6% year-on-year in 2021 — compared with a 0.9% contraction last year — and 4.6% in 2022.

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