After experiencing unprecedented volatility from the Covid-19 pandemic, Emerging Asia Pacific appears to have managed to contain the outbreak and lead a path to full recovery. Rahul Chadha, CIO, Mirae Asset Global Investments, says the region will likely continue to benefit from an improving global growth outlook on the back of vaccine advancements.
Similar to the rest of the world, Asian capital markets experienced unprecedented volatility from the Covid-19 pandemic. Several key events presented headwinds for the region in 2020. The US Senate passed the Holding Foreign Companies Accountable Act, the Chinese Government introduced the National Security Law in Hong Kong, and the US barred communication chip suppliers from selling to Chinese’s company Huawei. Further, US-China tensions escalated due to the Trump administration announcing bans on TikTok and WeChat.
However, Emerging Asia Pacific was resilient. Asian equities were up year-to-date (as of November 30, 2020) and forecasted growth is strong. Central bank policies in Asia remain accommodative and aim to keep liquidity plentiful, which we see as a strong tailwind for 2021.
China: robust economic recovery
Even though China was the first country hit by Covid-19, in subsequent months the country effectively managed to curb the spread of the virus and, as a result, experienced a robust economic recovery.
The improved outlook reflects the nation’s recovery, a normalization trajectory with GDP growth forecasted at high single-digit figures, and its long-term structural growth opportunities. We continue to like structural domestic demand stories in mobile gaming, e-commerce, education, healthcare, and food delivery.
With the US tightening restrictions on Chinese ADRs (American Depositary Receipts), more Chinese companies are looking at a Hong Kong listing.
On a geopolitical front, while a Biden administration might result in a marginally less volatile attitude towards China compared to Trump, we still anticipate a sustained power struggle between the two nations. The US’s bipartisan negative view of China will make it difficult for Biden to walk back on existing restrictions or pivot towards a significantly more conciliatory stance.
China’s 14th Five Year Plan and dual circulation strategy focus on driving growth through domestic demand, which should help support longer-term consumption trends and reduce the country’s dependence on foreign markets.
At the UN General Assembly on September 22, 2020, President Xi pledged that China would achieve carbon neutrality before 2060. In the coming decades, the expectation is for a substantial transformation in China’s energy mix and potentially a policy overhaul in environmental regulations. This announcement is the first time China has declared goals on carbon neutrality and demonstrates that the Chinese Government has begun to engage more on social and environmental issues. We expect that several Chinese companies will consider these new ecological concerns and apply them to their businesses; thus, ESG factors will become increasingly relevant in China.
South Korea: positive outlook
We are increasingly optimistic on South Korea’s outlook and potential growth recovery for 2021 and recent attractive valuations in select names. In July 2020, the South Korean Government announced the “Korean New Deal: National Strategy for a Great Transformation.” The Green New Deal portion of the policy calls for an expansion of solar panels and wind turbines as well as the installation of solar panels in 225,000 public buildings. With increasing ESG awareness and zero-carbon-emission policies from Europe and the United States, under a Biden administration, we believe renewables and companies at the forefront of the shift to renewables within their industry may benefit.
Taiwan has managed to keep the Covid-19 outbreak under control with normalization in activities. With the technology rally this year, Taiwan’s tech sector performed exceptionally well. However, going into 2021, we are mindful of valuations and continue to be prudent when assessing these companies on a risk-reward basis.
India: slow growth for the next months
When assessing India’s growth trend, we believe that positive structural factors of demographics, reforms, and globalization will be critical. With the end of lockdowns and Covid-19 cases declining, the markets should refocus on fundamentals. We believe markets have yet to realize the benefits of huge digitization and infrastructure investments like roads and electrification.
We believe that the Indian Government’s measured response on fiscal handouts was appropriate. The plan focused on direct cash transfers to vulnerable individuals and collateral-free automatic loans of US$40bn as an emergency credit line for small businesses.
We anticipate short-term growth in India to remain somewhat slow for the next 3-4 months. Still, with sustained policy measures in place, we believe this will improve investor sentiment for domestic and international entrepreneurs, which should help support more meaningful improvements in GDP growth.
ASEAN: recovery is slow
Southeast Asian markets have broadly lagged the rest of their North Asian counterparts. Growth recovery was slow, and investors were somewhat cautious of ASEAN governments’ ability to handle the Covid-19 outbreak. Foreign ownership in the ASEAN region remains low.
Still, with the success of a vaccine, we believe the region can reverse its underperformance relative to North Asia in the coming quarters. Vietnam in particular is a country that boasts robust growth, accelerating job creation and income growth. We believe Vietnam is set to benefit from US-China trade tensions and we like consumption-oriented sectors as well as leading banks in the country. Structurally, reforms like the Indonesian Omnibus law and Vietnam Securities law should help revitalize the economy and attract longterm investment.
Chief Investment Officer
Mirae Asset Global Investments
As Chief Investment Officer at Mirae Asset Global Investments (HK), Rahul Chadha oversees the entire Investment Unit. He is a member of the Investment Committee and plays a key role in the development of internal investment policies, processes and key investment decisions for the firm. Furthermore, Rahul manages a number of the firm’s Asia Pacific equity portfolios and frequently interacts with portfolio companies and investors to communicate Mirae Asset’s investment philosophy and views on Asian markets.