Asia and emerging market equities stage a come back

While all eyes have been on the US stock market and the performance of the big tech companies, Asia and emerging markets have been staging a come-back.

In the third quarter of this year (30 June to 30 September) both asset classes outperformed their developed market peers*. Asian equities in particular have not only had a strong three months, but also a strong year.

So far in 2020, the MSCI AC Asia ex Japan index has returned 12.65%** in sterling terms – some 3% more than the S&P 500. Over the third quarter it returned 5.8%*, while the MSCI Emerging Markets index returned 4.7%*. In comparison, the S&P 500 was up 3.7%, the Japanese TOPIX up 2.6%* and the MSCI Europe ex UK up 1.2%*. The FTSE All Share continued to fall, posting negative returns of 2.9%*.

Which countries have done best?

When you break down the performance, China, India, Korea and Taiwan are the countries that have done best – their stock markets are up some 5%-10% over the three months***. Indeed, the Chinese market has hit a record high, due to a massive surge in Chinese retail investors buying into the market.

Australia, Hong Kong, Indonesia, Malaysia, New Zealand, Singapore, Thailand, Latin American and Emerging Europe all posted negative returns***.

Which sectors have done best?

In terms of sectors, consumer discretionary, consumer staples, technology and materials were the industries doing well in the third quarter***. Tech hardware has benefited from increased demand for computers to work from home and data centres continue to grow exponentially.

Both Taiwan Semiconductor Manufacturing Company and Samsung are big weights in the index and have recovered very well. Chinese tech stocks like Alibaba, and Tencent, which are also big constituents, have also been good performers, helping drive the market higher as COVID-19 accelerates online adoption.

Can Asia and emerging markets continue to outperform?

Asia and emerging markets generally have younger populations than the West, which should be more resilient to the pandemic. Longer term, there are some structural themes which are positive too.

Edmund Harriss, co-manager of Guinness Asian Equity Income fund, says that inter-regional demand is picking up, China is increasing domestic development of its pillar industries, so it is less dependent on the West, and the middle classes and the consumer continue to grow, as does 5G technology.

That said, there is still the potential for increasing tension between the USA and China, as China grows stronger and increasingly rivals the US economically. It is possible that Asian and emerging market investors could end up as collateral damage in some scenarios. As ever, a balanced and well diversified portfolio may well be key to making the most of opportunities and limiting the impact of negative external events.

Top ten Asian and emerging market Elite Rated funds in the third quarter

RankFund/TrustPercentage returns 30 June 2020 to 30 September 2020*
1Fidelity China Special Situations20.1%
2GS India Equity Portfolio14.5%
3Stewart Investors Indian Subcontinent Sustainability13.2%
4Aubrey Global Emerging Markets Opportunities12.5%
5GQG Partners Emerging Markets Equity11.5%
6FSSA Greater China Growth9.1%
7Schroder Asian Alpha Plus8.3%
8Matthew Pacific Tiger8.1%
9Stewart Investors Asia Pacific Leaders Sustainability7.5%
10Fidelity Asia Pacific Opportunities5.5%

*Source: FE Analytics, total returns in sterling, 30 June 2020 to 30 September 2020
**Source: FE Analytics, total returns in sterling, 31 December 2019 to 14 October 2020
***Source: Guinness Asset Management, Bloomberg, total return for MSCI Indices show in GBP

This article is provided for information only. The views of the author and any people quoted are their own and do not constitute financial advice. The content is not intended to be a personal recommendation to buy or sell any fund or trust, or to adopt a particular investment strategy. However, the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions. Past performance is not a reliable guide to future returns. Market and exchange-rate movements may cause the value of investments to go down as well as up. Yields will fluctuate and so income from investments is variable and not guaranteed. You may not get back the amount originally invested. Tax treatment depends of your individual circumstances and may be subject to change in the future. If you are unsure about the suitability of any investment you should seek professional advice. Whilst FundCalibre provides product information, guidance and fund research we cannot know which of these products or funds, if any, are suitable for your particular circumstances and must leave that judgement to you. Before you make any investment decision, make sure you’re comfortable and fully understand the risks. Further information can be found on Elite Rated funds by simply clicking on the name highlighted in the article.