Navigating the Challenges and Unveiling Business Opportunities of COVID-19: Insights for Financial Policymakers

Abstract

The pandemic urges the entire system - including the financial system - to function correctly to minimise the adverse effects. The proper function of the financial system is requisite to minimise the adverse effects, which necessitate the appropriate functioning of the financial system. However, the risks of a financial crisis cannot be too remote. By the time of writing, there were widespread equity market sell-offs and panic in the pricing and liquidity of the global financial system, leading to the significant and ongoing increase in longer-term yields amidst looser short-term interest rates. Such a change would fundamentally affect various asset-liability management models in existing financial institutions. Amid the gloom, some "crowded" trades and business models would no longer be sustainable. The rise of COVID-19 also presents business opportunities. For instance, it has long been argued that there is an urgent need to solve the information crisis related to the traditional insurance and insurance-linked security markets. These instruments can be critical in managing sectoral and systemic risks and shifting risks between sectors that can handle them most efficiently. After the virus outbreak in 2003, the capital market played an important role in funding the research and underwriting securities of smaller and non-listed companies active in inventing antiviral drugs, vaccines, and hi-tech medical equipment. It is thus unsurprising that there is a strong interest in listed securities involving companies that are expected to have early technical attainment in the field of human health in the face of COVID-19.

The outbreak of COVID-19 is a global pandemic that has affected more than 180 countries across the world to date, leading to a widespread loss of human lives and socio-economic damage. Despite the substantial efforts to combat the virus and curb the diseases, the pandemic is sustained and spreads across communities globally. Beyond the health crisis, countries face daunting challenges in restoring economic and social stability. Due to the world's interconnectedness, countries not directly affected by the pandemic are exposed to widespread supply and demand shocks, affecting domestic economies. The policy measures adopted by one country have widespread externalities, and coordinating measures must be adopted. While some countries are tightening financial conditions by imposing capital controls and cutting interest rates, other countries have stepped up public spending to support the income of households and the financial strength of companies. Indeed, each country's policy response is shaped by the economy's characteristics and indexes of household liquidity position, dependence on economic sectors and markets for trades and financing, degree of openness and balance of payments position, inflation risks, and the fiscal space, among others.