Europe Lockdowns Put East-West COVID Pair Trade in Play

While the US and Europe continue to battle the pandemic, most countries in the Asia-Pacific region have managed to supress the pandemic. So, while Europeans implement new lockdown measures that will slow down their economies, life is approaching normalcy in the East Asian countries to the benefit of their economies. This sets up the opportunity for a tactical pair trade.

Related ETFs: iShares Asia 50 ETF (AIA); iShares Core MSCI Europe ETF (IEUR) 

Nearly 3 million new confirmed coronavirus cases have been reported globally in the past week, the shortest time ever for such an increase, and 43% of those were in Europe. In the U.S., where cases are on the rise in all but a handful of states, more than 71,000 people a day are testing positive on average, up from 51,000 two weeks ago. John Hopkins’ outbreak evolution chart for the current ten most affected countries shows infection rates falling in India and Brazil, stabilizing in Argentina, and increasing in France, Italy, Poland, Russia, Spain, the UK and the United States.

With that, the pandemic’s epicenter has swung back to Europe and the United States, which to-date has the highest number of infections and deaths, accounting for about 20% of the global total.

Europe’s Brutal COVID Resurgence

Not too long ago, it seemed like Europe had the pandemic mostly under control. Now, a growing number of European countries are reporting new records in the number of daily cases, including Bulgaria, the Czech Republic, France, Hungary, Germany, Greece, Italy, the Netherlands, Poland, Portugal, Russia, Slovenia, Spain, and Switzerland. Altogether, Europe reported 1.3 million new cases in the past seven days, nearly half the 2.9 million reported worldwide, with over 11,700 deaths, a 37% jump over the previous week.

Authorities have warned that even well-equipped health systems like those in France and Switzerland could reach breaking point within days. About 58% of France’s intensive care units are now taken up by COVID-19 patients. Meanwhile, Germany has started to take patients from the Netherlands, where hospitals have reached their limits. Further north in Russia, hospital beds are at 90% of capacity in 16 of the country’s regions, according to a government official.

The speedy resurgence and concerns that this second wave could be deadlier than the first have compelled the region’s biggest economies to impose measures almost as severe as the ones that drove their economies into recession this year. France and Germany are going back into lockdown; Italy introduced its toughest restrictions since the end of a national lockdown in May; Spain and several other countries have imposed night-time curfews; The UK is following a localized strategy for now, but that could change into a national lockdown, per internal government projections.

Even Sweden, which avoided a national lockdown earlier in the year, and generally imposed far lighter measures than its neighbors, is now urging people in some cities to avoid shopping centers, museums, libraries, swimming pools, gyms and public transportation.

America’s Continuous Battle

Across the Atlantic, a notable slowdown in Latin America’s new cases and fatalities suggest the hard-hit region has either passed the worst of the outbreak or at least the worst of its first wave of infections. The number of new daily cases has halved in places like Brazil, Mexico and Colombia, and appears to be stabilizing in Argentina.

This is not the case in the United States where newly confirmed infections per day are surging in 46 states, according to COVID Tracking Project data. Hospitalizations across the nation have risen by 37% in the past three weeks, and COVID-related deaths are climbing in 39 states, with an average of 805 people dying in the U.S. per day, up from 714 two weeks ago.

While a few governors have sought to re-impose tight restrictions in their states, lockdown fatigue coupled with Americans’ strong disposition to preserve their individual rights greatly reduces the probability that the U.S. will follow the same course of action as Europe…