Why active investing can solve the argument over Asian equities
In early October, the World Bank issued a tough assessment on Asia, warning that the region’s...
On 23 January 2020, when China announced it was shutting down Wuhan (the centre of the coronavirus outbreak) to prevent further spread of the disease, the rest of the world looked on, believing it was a localised issue.
Roll on just over two months, and much of the rest of the world is now in lockdown – while China is starting to return to normal.
We asked a selection of Elite Rated managers what they are seeing on the ground to see what we can learn from China’s journey.
“China has the monetary and fiscal firepower to help the country through this time – and a willingness to use it. Elsewhere in Asia, this varies more. But overall, Asia is definitely in a better position to weather the storm than it was 10 years ago.
“Countries with exposure to external demand like South Korea and Taiwan are going to find the next few months harder, as the rest of the world is behind in terms of lockdown. But anecdotally in these countries and China, things are starting to normalise.
“The technology and healthcare sectors provided a little shelter from market falls, the latter for obvious reasons, and technology due to the move online: streaming, communication, etc. 5G infrastructure plans should also go ahead without too many problems.
“We’re likely to see a slower recovery in travel and tourism, but even here it is important to distinguish between businesses. International travel is likely to be less in demand than domestic travel, especially in China, where people have shown more of a willingness to travel ‘locally’.”
“The last couple of months have been difficult for China. But now we are seeing very few new cases of the disease and the government and companies are trying to get back to normal.
“Production lines turned back on pretty quickly, but there is a lot of demand uncertainty – especially for exporters, as the rest of the world is still very much shut down. Domestic consumer confidence has also been hurt and restaurants especially are still quite quiet. But students are returning to school and university and the worst seems to be behind us.
“We seem to have a crisis in Asia every 10 years or so. But they are always different. This time it is very global in nature and, unlike the global financial crisis, quantitative easing cannot cure the problem. Therefore, there is more uncertainty.
“In wider Asia, it is important to understand that different countries are at different points in the crisis and have different scales of government and central bank policies to help deal with the situation.”
“Our fund managers across Asia have been updating one another with personal experiences on the ground. While China appears to be getting back on track, the rest of the region is still coming to terms with more stringent measures in efforts to mitigate the virus impact.
“For example, in India, the government has only just forced factory and plant shutdowns (March 21-22) and ordered people to remain indoors until 15 April. In Indonesia, there has been panic-buying in anticipation of a potential lockdown, which has yet to happen, and restaurants and shops are only shutting due to less footfall – not because they have been asked to close.
“In Singapore, all sporting events, exhibitions and trade fairs are banned, and most gyms are closed until the end of April, but gatherings outside of work and school are still allowed up to 10 people. There has also been panic buying as online grocery deliveries are limited.
“In Thailand, a state of emergency was declared on 26 March, shopping malls, cinemas, sports centres and bars and restaurants are closed until 30 April. Commuters are required to wear facemasks.
“And, while people are more relaxed in China, as fewer or even zero cases are being reported in most areas, activity is best in Shanghai at around 70% of normal levels (Beijing is around 20-30%). Traffic jams are starting again but restaurants are still suffering, and consumer sentiment remains weak. Beer companies have done better than most and are talking up a recovery in the second quarter, and luxury car dealerships have indicated that new car orders are around 80% of normal levels.”
“The scale of the shutdown across the world is one that has no template – even during war time there is economic activity. Not so today: Goldman Sachs has estimated that some 92% of world GDP has been impacted by the virus.
“The general message we are hearing from companies in China is that they are getting back to work, but they are concerned about demand from Europe and the US. They are also concerned about the possibility of a second wave of the disease.
“However, as a region, Asia is pretty well capitalised and has a bigger domestic market than it had even 10 years ago. Dividend payments – like elsewhere in the world – will be impacted, but not by too much in my view, and there is certainly the potential for dividend growth again over the next 2-3 years.”