Structural Trends Supporting Asian Equities
Asian markets have performed well amid the worst global economic backdrop since the Great Depression. Indeed, 2020 has shaped up to be a year of many paradoxes—the year has brought with it a severe economic contraction as governments shut down activities, yet we have seen new highs in select stock markets, largely due to governments’ aggressive fiscal and monetary policies. In terms of market performance, there are also sharply contrasting developments—between the technology and non-technology sectors, the Asian economies that have been successful in containing the virus and those that are still plagued by the pandemic, and the beneficiaries of the work-from-home environment and its victims.
Reflecting these characteristics, the North Asian markets have outperformed the ASEAN region this year given their greater tech exposure and success in containing COVID. Growth stocks—which typically include beneficiaries of the pandemic like tech, health care and new consumption companies—also outperformed value stocks like banks and tourism, which have been more challenged by the pandemic.
Markets were able to bounce off the lows in March much faster than expected—especially in the context of the extent of the contraction and the number of job losses—thanks to timely and aggressive actions by central banks and governments. At the same time, COVID has helped accelerate a number of structural trends, leading to a significant re-rating of large cap companies in the tech space.
While the pandemic remains troublesome with second and third waves now flaring up in Europe and the U.S., we expect the global economy to continue its path to recovery in 2021. In addition to this, we are likely closer to finding an effective vaccine that can help unlock economies still struggling with containment.
With earnings bottoming out this year and the recovery broadening from economies beyond China and North Asia to ASEAN and India, especially once a vaccine becomes available, we are constructive on the outlook for Asian equities as a whole—a view that is underpinned by the following four secular themes.
