Major developed markets, led by US stocks, are outperforming emerging markets so far this year. A key driver is the flow of foreign equity funds, out of the latter and into the former, which we highlighted last week (“Covid-19 drove global funds to developed markets”, The Edge, Issue 1384, Aug 23). We attribute this, primarily, to short-medium term economic growth divergence because of the Covid-19 pandemic — resulting from differences in their abilities to implement massive monetary and fiscal stimulus to buffer the impact and subsequent pace of recoveries that is driven by vaccination rates.

This divergence in growth outlook appears likely to persist for longer now that the US has decided to give a third Covid-19 booster shot to all fully vaccinated Americans from Sept 20. Israel and Hungary had already started doing the same earlier, while others such as Germany, France, Belgium and Austria have planned to offer booster shots to their elderly and immunocompromised patients next month. The US’ decision to broaden the recipients of the third dose to all would probably trigger a similar move in other rich countries. Incidentally, the US Food and Drug Administration last Monday granted full approval to Pfizer-BioNTech’s vaccine, Comirnaty, paving the way for more vaccine mandates. All of the above may well leave even less for the rest of the world, further delaying their economic recoveries.

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