A range of Covid trajectories in emerging markets

The pandemic has hit each country in unique ways. Understanding the local and global investment implications takes deep, country-by-country analysis.


A single narrative has come to dominate the market outlook. It holds that the combination of vaccine distribution, government stimulus and pent-up demand will power a burst of economic growth later this year, potentially boosting inflation and broadening corporate profit growth. Markets have rallied strongly on this belief.

Investors may assume that this narrative applies globally—but that assumption is flawed. Country-by-country analysis of emerging markets makes clear that on the whole they have experienced Covid-19 very differently than developed markets, and that the experiences of individual countries within the EM complex have varied widely.

Particular countries’ distinct situations lead to divergent outlooks for capital markets around the globe. This environment demands thorough understanding of each market’s individual situation and dynamics.

Covid hit the developed world hardest

Early in the Covid-19 pandemic, conventional wisdom expected the disease to be far more destructive in emerging markets than developed markets. That forecast was wrong. “While the coronavirus has been painful in poor and middle-income countries, it’s been significantly less painful than we would have expected,” notes Belinda Boa, BlackRock’s Head of Active Investments for Asia-Pacific and CIO of Emerging Markets in BlackRock’s Fundamental Active Equity Business.

Certain EM countries kept infection rates low by implementing strong track-and-trace systems and/or quickly closing borders—particularly China, Korea and Taiwan, which make up two-thirds of EM market capitalization.1 The three countries had just 36,467 confirmed new cases of Covid-19 during the first 68 days of 2021, compared to 8.88 million for the United States2

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While the coronavirus has been painful in poor and middle-income countries, it’s been significantly less painful than we would have expected.

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Belinda Boa, BlackRock

Overall, developed markets had roughly five million more confirmed cases than emerging markets through late February3, despite much smaller total populations. But the more surprising and consequential difference is an enormous gap in mortality rates, which are far lower in the emerging world (see the chart below)—even among countries with severe outbreaks, such as India and Indonesia. Research suggests the discrepancy can’t be explained away as a product of better reporting in developed countries4.

Why have poorer countries withstood the pandemic so much better than their wealthy counterparts? Researchers aren’t sure, but the explanation could lie in a combination of factors such as demographics, climate, lower comorbidities and experience with previous outbreaks.

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Overall, developed markets had roughly five million more confirmed cases than emerging markets through late February, despite much smaller total populations.

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John Hopkins University CSSE and BlackRock

Covid mortality much lower in emerging markets

Confirmed cases and deaths per 1M overview in developed vs emerging markets.

Source: Johns Hopkins Uni CSSE and BlackRock, February 22, 2021.

Many pandemic endgames

Vaccines look likely to end the pandemic in the developed world this year. That isn’t the case in many emerging markets, which have less access to vaccines—particularly those most effective against new strains—and less infrastructure to roll them out. All of the willing US population is likely to be vaccinated by year-end 2021, compared to 34% in the EU and just 11% in emerging markets5. At the same time, political and economic considerations may prevent the imposition of additional lockdowns in many countries.

Cumulative COVID-19 vaccination doses administered per 100 people

COVID vaccination doses per 100 people chart

Source: Official data collected by Our World in Data - Last updated March 10, 2021.

EM countries could have a range of Covid endgames. Some may be able to inoculate their way out of the pandemic; many others may need to allow the virus to spread in order to reach herd immunity. In emerging markets broadly, the coronavirus could continue to interfere with life for additional months or years—but the degree will vary considerably from country to country. “I think we will see very diverse results across the emerging-markets complex both in terms of the efficacy of the rollout and the speed with which it happens,” says Boa.

Investment implications

Emerging and developed markets alike seem to be priced for an end to the pandemic later this year. We believe that approach is warranted in certain emerging markets but may not be in others.

We believe the EM countries that were first to experience second waves and new variants are closest to the end of the pandemic. These include South Africa, where the seven-day average of confirmed new cases fell from 321 per million people in early January to fewer than 19 as of March 9, despite the emergence of more-contagious strains6. We expect similar developments in Brazil, where new cases per million people currently are roughly the same as South Africa’s were at its peak7.

In our view, investors in other countries may be too complacent about the risk that new waves of Covid could restrict economic activity. For example, asset prices in India suggest investors think the country has reached herd immunity. We believe that might not be the case. If the country does not have herd immunity, it faces the possibility of a second wave that could destabilize its markets in the short term.

Likewise, China has led the global recovery to this point. It was the only major economy with positive 2020 GDP growth8, and has seen key economic indicators recover to pre-Covid levels9. Risks remain, however. The country’s low rate of infection may have limited the development of natural immunity to the coronavirus generally and to new variants in particular. Meanwhile, China has been exporting vaccines rather than deploying them within its own population. Although this practice may be changing, as of the end of February the country had inoculated only 3.65% of its people with at least a single vaccine dose, compared to nearly 23% for the United States10. Although China may benefit from a global economic recovery, its sensitivity to a second wave could prevent the country from fully reopening its borders until 2022.

Individual countries’ situations are evolving rapidly. Investors need to understand the Covid trajectory in each and be prepared to adapt. Thorough research in each market is essential for investors to understand the different experiences and outlooks around the world, and to allocate portfolios accordingly.