The IMF has released reports on how the increasing demand for COVID vaccines and lagging behind supply may lead to some financial instability. Shortages in the vaccine could lead to lower-income countries to drag on economic recoveries as they are unable to obtain the necessary amount of vaccines. The IMF states that they believe having an inequitable distribution of the vaccine’s risks creating financial vulnerabilities in economies that are unable to match the demand for the vaccine.
This contributes to how emerging market assets have inflated the first weeks of the year, and that there will be a risk of the infections increasing number and size in emerging markets as the vaccines are not distributed as quickly as planned. Emerging markets are also vulnerable in the sense that there has been a shift in the appetite for global risk. Investors currently are very “risk hungry” and that may post threats to these economies if there is not a period of “risk satisfied” by said investors. These markets have increased 8% since the start of 2021 in cost, in addition to the nearly 20% surge in the last quarter of 2020.
All this with the addition of central bank stimulus programs combined with a rising in retail trading can inflate the price of riskier assets such as the stock market, which was seen in the last weeks as many stocks reached all-time highs. The risk to financial stability from a potential emerging market will fully depend on how many negative surprises that the virus causes amongst global countries. There is much uncertainty with how the rollout of the vaccine will even occur, and if richer countries will be able to successfully adopt and distribute manufactured vaccines or if these countries will monetize the vaccines to themselves.
Overall, there are many pockets of vulnerability, and it is for certain that some countries will be hit harder economically and socially by the uneven distribution of the vaccine. But overall, it seems to be mostly certainty hat the global economy and more powerful financial sectors will stand resilient. Countries that may be hit especially hard include countries in the African continent, the Middle East, and some parts of South Asia. Ultimately, this is a time where people globally need to stand together in order to produce and distribute the vaccine efficiently and effectively.
Lucas Zhang was a Finance major at Ohio State University. He writes about finance, mortgages, and technology for Irish Mortgage Brokers.