Opportunities in Asia

By Jayson Forrest - Managing Editor  - IMAP Perspectives

Paras Anand: We’ve seen in the early part of 2021 and the end of last year, the benefit from successful pandemic containment across the Asia Pacific region.

If we look at North Asia, or areas like Australia and parts of Southeast Asia, we’re seeing the early reopening of economies and resumption of economic activity. Most notable is China, where in the fourth quarter of last year, the country returned to its pre-pandemic level of growth.

Paras Anand: I believe the backup that we’ve seen in yields speaks to the more optimistic outlook for the U.S. economy and the global economy in general ‑ and that spells good news for Asia.

But from a currency perspective, we clearly saw currencies across the region strengthen relative to the U.S. dollar over the course of 2020. As we look forward to the next couple of quarters, I would expect that to be more muted.

Paras Anand: Where we are seeing vaccination rollouts progress more quickly - in parts of the world like the U.S. and the United Kingdom - there are also the parts of the world where we are seeing the greatest fiscal measures that are focused on the demand side.

That means that consumption is likely to recover very quickly in the U.S. and parts of Europe and the United Kingdom. And that spells very good news for the export-orientated economies in Asia

Paras Anand: When we think about the prospect for tightening in China, you have to remember that we did not see a substantial loosening of policy in China as we went through 2020, and nothing like the scale of fiscal or monetary stimulus that we saw elsewhere in the world.

So, when I look at the economic strategy for China, I would expect there to be continued support in areas like research and development, high-end manufacturing and the opening up of the financial markets, more so than a lot of spending on fixed asset investment.

Paras Anand: I believe there’s a very strong case that what we have started to see in markets, which is this shift away from the very highly-valued growth sectors towards a broadening out of market returns, is likely to persist as we go through the year ‒ and not just in Asia, but also in markets globally.

This will be quite a new phenomenon for many investors, where we have been very used to value rotations being short and sharp in nature, versus one which could potentially have a reasonable duration to it. 

Paras Anand: I think it would be reasonable for investors to have more modest expectations from headline market returns, especially in equity markets over the coming quarter, given that we’ve seen a very strong performance over recent quarters. And even if we have that positive outlook on the global economy and the outlook for Asia as a region, I think some part of that has already been discounted in prices in the short-term.

As for bond markets, I expect they will continue to remain under some pressure as inflationary pressures build in the real economy.

Paras Anand: Other than China, there are a couple of areas in Asia that offer potential opportunities. They are:

1. Japan. We are positive on the prospects for Japan, where the story is less driven by the macroeconomic picture and more driven by the level of corporate reform that we are seeing throughout Japanese companies. So, it’s that determination to improve underlying returns, as well as being married with relatively low valuations ‒ and not just within the region, but also globally. 
   
   
2. Southeast Asia. I believe that this region will benefit not only from improving global growth and the ambition of economies like the U.S. to diversify supply chains, but also from greater growth within Asia and the greater integration within the region.  

Paras Anand is Chief Investment Officer, Asia Pacific, at Fidelity International.