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The rate at which new coronavirus infections are surging across Latin America, South Asia, and Africa suggests that emerging markets X-China will become the next epicenter for the pandemic. Accordingly, MRP is recalibrating one of its COVID-related themes by expanding not just its geographical focus but also the way the theme is implemented. In practical terms, we are suspending one existing theme and launching a different one in its stead. 

Related ETF: KraneShares Emerging Markets Healthcare Index ETF (KMED)

MRP initiated a Short India theme on March 27, 2020. At the time, we wrote:

“India’s high population density, patchwork healthcare infrastructure and air pollution problem heighten the probability that India could become the next global hotspot for coronavirus. If a health crisis does erupt, it may destabilize the country’s already weakened financial system, triggering even bigger capital outflows from Indian assets than we’ve seen year-to-date.”

Recent data points and developments have only reinforced our concerns. As we had predicted, India has become a coronavirus hotspot and the country’s healthcare infrastructure is overwhelmed and sucking up limited economic resources. At the time we launched the theme, India had about 700 confirmed COVID-19 cases. By the end of June, India’s reported case count had crossed the 500,000 threshold and, as of last Friday, India had over 1 million COVID cases, with infections continuing to rise rapidly.

It is unlikely that official statistics reflect the full scope of the outbreak: India has conducted about eight tests for every 1,000 people, compared with 127 in the United States. Jayaprakash Muliyil, a leading Indian epidemiologist, believes that India’s total number of cases will eventually eclipse that of the U.S, especially as infections move from cities to the country’s vast hinterland where the health system is even less prepared to cope.

Meanwhile, it has not escaped MRP’s attention that a growing number of developing countries — from Pakistan to the Philippines, Brazil to South Africa — are exhibiting the same vulnerabilities as India…

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