Covid pandemic remains the wild card for APAC financial markets

The markets are somewhat complacent to the elephant in the room that is the resurgence of the delta coronavirus variant sweeping its way throughout the world, forcing nations back into lockdowns. 

In fact, many countries in Asia-Pacific feel right back to where they started as being hit the hardest despite the strict lockdown rules of the past. 

Such tactics included closing off borders to almost all foreigners, imposing strict quarantines for arrivals, and introducing aggressive testing and tracing policies to catch any cases that slipped through the net. 

However, the delta variant is far more contagious and the fresh outbreaks are throwing the zero Covid strategies favoured by China and Australia into question.

In Australia's Covid hotspot New South Wales, the state that's home to Sydney, authorities have said reaching a 50% vaccination rate could be enough to start easing the state's strict lockdown, a shift from the country's previous attempts to bring cases down to zero.

New South Wales has recorded 344 new covid cases in the past 24 hours and the State's Premier expects the surge in new cases to continue.

Meanwhile, Australia's Victoria State Premier has extended the Covid-19 lockdown in Melbourne for another seven days. 

In China, where a handful of cases can prompt mass testing, a growing number of public health experts are now favouring mitigation, rather than zero-tolerance as a prefered approach, according to Huang Yanzhong, senior fellow for global health at the Council on Foreign Relations.

This switch in protocol comes as China's coronavirus cases hit a seven-month high on Tuesday (Aug 10), after a cluster at a test site drove up numbers as the Delta variant challenges the heavily populated cities such as Beijing's grip on the pandemic.

State media has described the current outbreak, which has sparked local lockdowns, mass testing and travel restrictions, as the most dangerous since the virus emerged in the central city of Wuhan.

Casting minds back to when the pandemic spread and the Australian dollar benefitted due to the divergence in cases between Australia in comparison to other nations such as the UK, US and Europe, then the question must be asked for the implications of a change in strategy. 

The Asia-Pacific countries, by and large, have had an incredibly successful year and a half responding to Covid with the zero covid strategies.

But these policies will be challenged by the delta variant that is said to be between 60% and 200% more contagious than the original strain first identified in Wuhan.

Therefore, the shift away from the zero covid approaches, as governments of those nations, ultimately will have to face the dilemma of opening up to the world for the sake of the economy, could see such currencies as the Aussie take a significant hit.

This could be especially true in the face of a resurging US dollar as the Federal Reserve moves towards a far more hawkish tilt. 

Australia is especially vulnerable due to the nation's slow take-up in the vaccine roll-out. 

As of Sunday, just 17% of Australia's population of 25 million people have been fully vaccinated.

Compared to the UK's 58% vaccination of the population and where there has been a recent rapid drop in rising cases as a reuslt, or to the 50% in the US, then it would be of little surprise that Australia's lack of immunity to stop Delta's spread wouldn't transpire into an exodus from AUD as risk aversion takes hold of market sentiment. 

However, for now, both China and Australia do not seem likely to ditch the zero strategies overnight, but at some stage, a move to a mitigation approach will be a testing time for financial markets invested in APAC nations.