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Move to US bonds or dollars likely: Kotecha | Economic Times

Vaccination rates remain low in many countries and that has led to a pull out of capital from Asia in general. The developed markets have benefitted to some extent but now there may be a risk of contagion because of this China crackdown and an even more generalised wave of risk aversion, says Mitul Kotecha, Chief Emerging Markets Asia & Europe Strategist, TD Securities. Are global investors pulling money out of Asia? Will this money go back to developed markets or will it find newer avenues in the rest of Asia?The latest policy moves in China -- the regulatory crackdown on the tech sector as well as the private education sector in China -- are having obviously a very negative impact on Chinese equities and obviously impacting the FX market as well. We are seeing some contagion in Hong Kong and investors are reallocating into other Asian markets. These concerns add to the concerns that have been in place in recent weeks which is the spread of Covid across much of the region. Vaccination rates remain low in many countries and that has led to a pull out of capital from Asia in general. The developed markets have benefitted to some extent but now there may also be a risk of contagion because of this China crackdown that we are seeing and it may result in an even more generalised wave of risk aversion. Do you see this issue becoming a massive global rout or do you see it get contained?I do not think it will turn into a global rout. We are not anywhere near the Covid crisis we were in last year, but nonetheless Asia has been underperforming because of the Covid cases and low vaccination. There is differentiation. Some countries, India for example, have seen a massive decline in a number of Covid cases and maybe better off than some other countries in terms of the asset market performance. But it is hard to see any market in Asia really escaping these pressures. So maybe we will see a move towards more safe haven assets like US bonds or dollars in the near term. But this is not going to be a global rout by any means.

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