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Economy | US | Europe | Asia-Pacific

East vs. West: A Contrast in COVID-19 Outcomes

After a summer reprieve, the rise of a second wave of COVID-19 in US & Europe was widely anticipated. In the US, the Midwestern states are leading the second wave. With the US election now 8 days away, the probability of a second large-scale fiscal relief package appears to be near zero due to partisan disputes. Therefore, any additional stimulus may await a new Congress in January. In Europe, the European Union has set in motion a larger stimulus through transfer payments to the most impacted countries. But these may only impact the region in full over the course of 2021.



Asia’s different kind of medicine

  • COVID-19 infection rates have remained dramatically lower in much of Asia. A centralized, disciplined and enforced government response in large parts of North- and East Asia remain in place and effective. As a result, China has been able to mitigate economic impact without turning to as dramatic a “money printing” approach used by Western economies.


  • The difference in the “cost of COVID-19” between the West and East is dramatic and visible. While China’s general government budget deficit has grown from 4.7% of GDP in 2019 to 5.3% in early 2020, a surge in US deficit spending, from 5% of GDP to 15% in 2020, has been required to achieve economic stability thus far.  




Implications for portfolios

  • Near term: Though Citi analysts expect a bumpy road to recovery in the West, they favor certain “COVID-19 cyclicals”. The most impacted equities have still held April lows despite major challenges and Citi analysts believe that 15% of the global economy devastated by COVID-19 could experience a rebound.


  • Long term: In 2020, Fortune’s list of the world’s top 500 companies has more businesses from China and Hong Kong than from the US. By reference, there were none on the list 30 years ago. In the context of history, however, China itself still has “room to run”, as it shifts from an export-driven economy to a domestic consumption-driven one.


  • In the event that there is a change in the US government in early November, there may be a different and more concessionary Chinese engagement. Fewer economic restrictions and tariffs could allow China to focus on domestic demand.


  • There are many promising areas for investment against this backdrop, from 5G infrastructure to the rebuilding of “old” cities and transportation infrastructure. Asian countries are also already playing a major role in climate change with the development and installation of infrastructure that changes how energy is produced and consumed. The Asian consumer could also create opportunities across e-commerce and in leisure industries.