Quality Growth Boutique

2021 Asia Pacific Equity Outlook: Finding quality in an accelerating recovery

Outlook

Portfolio Manager Brian Bandsma discusses fintech in China, the Regional Comprehensive Economic Partnership, the rally in financials stocks, and portends that the economic recovery will vary by country in the region.

 

  • Asia Pacific equity markets have advanced this year and, in many cases, in record territory. This is mainly due to a better government response in controlling the virus, which has resulted in a quicker rebound across Asian economies. News in November about promising vaccines has reinforced investor confidence.
  • Virus-induced disruptions have accelerated some important secular trends that were already underway, such as the shift to e-commerce or digital payments. Other trends may be more cyclical in nature. Those trend more specific to people being confined to their homes could see some reversal as we exit the pandemic.  
  • Economic recovery will vary by country. China has largely returned to business as usual with little re-emergence of the virus reported. India has also returned to business as usual, although a significant human impact from the virus has resulted due to the structure of its economy and workforce. Thailand, meanwhile, is dependent on tourism and has continued to struggle economically.
  • Like regulators around the world, Chinese authorities are still contending with how FinTech fits into the financial system, which may have contributed to the postponement of the Ant Financial IPO. Draft anti-monopoly regulation for e-commerce still has room for negotiation and may ultimately have a positive impact on established players, such as Alibaba and Tencent, by increasing barriers to entry and driving consolidation.
  • The Biden administration in the US is likely to follow the same direction on China, but adopt a different tone and take a multilateral approach. However, any new administration typically has little impact on long-term market returns. What really matters to investors is corporate profit growth, valuations and owning the right businesses.
  • The recent signing of the Regional Comprehensive Economic Partnership should lead to greater trade within Asia. However, much will depend on China’s stance. If China frequently uses punitive tariffs to punish countries for saying things it does not want to hear, then it will be difficult for the trade agreement to function
  • Financials stocks have rallied and can improve further. There has not been a large increase in non-performing loans (NPLs) in Asia, although bad debts can take time to emerge after a period of economic weakness. The sooner economic activity recovers, the better for the Asian financial system.

 

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Quality Growth Boutique
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Outlook

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