Summary

  • Regional markets rebounded in June, as optimism over the reopening of economies around the world and easy monetary conditions outweighed concerns about the emergence of a second wave of Covid-19 infections in several countries. The MSCI AC Asia ex Japan Index gained 8.4% in US dollar (USD) terms over the month.
  • Hong Kong, Taiwan and China were the best-performing markets. Hong Kong stocks jumped 11.0% in USD terms, as better-than-expected US and Chinese economic data renewed hopes for a sustained economic recovery, offsetting lingering worries about the US applying sanctions against the territory in response to a new national security law imposed on the city by Beijing.
  • In India, stocks tracked the regional upswing and returned 6.8% in USD terms for the month, as investors overlooked rising coronavirus cases in the country and the growing China-India tensions.
  • In the ASEAN region, all equity markets turned in positive returns in June, despite underperforming their regional counterparts. The Philippine and Indonesian central banks cut interest rates to support their economies, while Malaysia and Indonesia announced further stimulus to aid recoveries from the Covid-19 pandemic.
  • Longer term, we remain confident that governments in Asia possess the political will and capabilities to continue their reform momentum; we therefore favour assets in newer and more productive industries. We continue to favour these structural areas, including software, healthcare, 5G, industrial automation and renewables.

Asian equity

Market review

Regional equities surge on optimism as economies reopen

Asian stocks rebounded sharply in June, as optimism over the reopening of economies around the world and easy monetary conditions outweighed concerns about the emergence of a second wave of Covid-19 infections in several countries. Dovish statements from the US Federal Reserve, which signalled its intent to keep interest rates unchanged through 2022, also lifted market sentiment.

In June, the MSCI AC Asia ex Japan Index jumped 8.4% in US dollar (USD) terms. Within the region, Hong Kong, Taiwan and China were the month's best performing markets, while Thailand, Malaysia and Singapore were the laggards.

1-year market performance of MSCI AC Asia ex Japan versus Emerging Markets versus All Country World Index

1-year market performance of MSCI AC Asia ex Japan versus Emerging Markets versus All Country World Index

Source: Bloomberg, 30 June 2020. Returns are in USD. Past performance is not necessarily indicative of future performance.

MSCI AC Asia ex Japan versus Emerging Markets versus All Country World Index price-to-earnings

MSCI AC Asia ex Japan versus Emerging Markets versus All Country World Index price-to-earnings

Source: Bloomberg, 30 June 2020. Returns are in USD. Past performance is not necessarily indicative of future performance.

Hong Kong and China equities outperform

Hong Kong stocks jumped 11.0% in USD terms in June, as better-than-expected US and Chinese economic data renewed hopes for a sustained economic recovery in the territory, offsetting lingering worries about the US applying sanctions against the territory in response to a new national security law imposed on the city by Beijing.

Despite a surge in new Covid-19 cases detected in Beijing in mid-June, China stocks rose 9.0% in USD terms for the month, supported by the country's improving manufacturing and housing data, as well as Beijing's latest reforms in its capital markets.
Elsewhere in North Asia, Taiwan and South Korea—boosted by the strong performance of global technology (tech) stocks—also turned in strong USD gains of 9.1% and 8.1%, respectively, in June.

Indian stocks track the regional upswing

In India, stocks tracked the regional upswing and returned 6.8% in USD terms for the month, as investors overlooked rising coronavirus cases in the country and the growing China-India tensions. Fitch Ratings lowered India's sovereign rating outlook to negative from stable, citing the severe impact of the Covid-19 pandemic on the country's growth and public finances outlook, while Moody's downgraded India's credit rating to Baa3 from Baa2.

ASEAN markets lag their regional peers

In the ASEAN region, all equity markets turned in positive returns in June, despite underperforming their regional counterparts. The Philippines (+8.1%), Indonesia (+7.0%) and Singapore (+4.4%) saw decent USD gains for the month, while Thailand and Malaysia delivered modest USD returns of 2.1% and 2.7%, respectively.

In June, the Philippine and Indonesian central banks cut interest rates to support their economies, while Malaysia and Indonesia announced further stimulus to aid recoveries from the Covid-19 pandemic. In Singapore, the government gradually lifted Covid-19 restrictions in a bid to restart parts of the economy and called for a General Election on 10 July 2020.

MSCI AC Asia ex Japan Index1

For the month ending 30 June 2020

For the month ending 30 June 2020

Source: Bloomberg, 30 June 2020

For the period from 30 June 2019 to 30 June 2020

For the period from 30 June 2019 to 30 June 2020

Source: Bloomberg, 30 June 2020
1ote: Equity returns refer to MSCI indices quoted in USD. Returns are based on historical prices. Past performance is not necessarily indicative of future performance.

Market outlook

Risk assets will continue to be well-supported

With Covid-19 fears and subsequent waves of infections persisting in large parts of the world, global financial conditions will remain extremely easy as a result of extraordinary fiscal and monetary policy actions globally.

Risk assets will continue to be well-supported with the increase in monetary supply overwhelming fears surrounding the ongoing pandemic. The actual extent of economic recovery, however, will rest on government reactions, impact to confidence and ultimately, how long it takes for a vaccine to be found.

A large part of Asia continues to measure relatively well in terms of government administrative competence. In the longer term, we remain confident that governments in Asia possess the political will and capabilities to continue their reform momentum; we therefore favour assets in newer and more productive industries. We continue to favour these structural areas, including software, healthcare, 5G, industrial automation and renewables.

Continuing to favour attractively-priced structural growth areas

In China, the policy tone on "quality over quantity" remains highly consistent and predictable across all levels of the government. With geopolitical uncertainties still lurking in the background, there is also a strong argument that the central government is keeping some of its powder dry as part of future contingencies.

For now, however, the Chinese government continues to be extremely focused on its priorities to reform and accelerate its shift towards consumption and new infrastructure, such as 5G, digital, automation, healthcare and environmental infrastructure. To that end, we continue to favour attractively-priced quality companies operating in these areas of structural growth.

Notwithstanding the unpredictability of North Korean theatrics, it is a good sign that diplomatic relations between China and South Korea appear to be warming up, as evidenced by serious talks about Beijing lifting its sanctions on Seoul. The warming of relations, if complemented by real policy changes, could portend better days ahead for export-oriented South Korean companies, such as firms engaged in content and consumption. Regarding the hardware tech sector in South Korea and Taiwan, whilst we continue to find innovative and quality companies in this area, we are cognisant of the increasing risks of further dislocation from the US-China tech war and pockets of rich valuations.

Constructive on India’s long-term outlook

As we have highlighted in the past few months, the global pandemic has been a particularly difficult challenge for India, which has been forced into longer and more haphazard lockdowns and with less fiscal room to manoeuvre. In an encouraging sign, however, the government has been fairly active in pushing its "Make in India" program by accelerating several reforms and policies in industries such as manufacturing and coal.

In addition, the Indian government has also announced plans to introduce further power and labour reforms, which will improve factors of productions. Despite the short-term economic pain, we remain constructive on India's longer-term outlook and continue to favour private banks, digital service and logistics. We have also been reinforcing our favourable view of specific consumer subsectors.

Similar to India, ASEAN markets have been hit hard by Covid-19 but are gradually recovering from the harsh disruption. Parts of the region, like Vietnam, have emerged from the crisis with a newfound reputation for hardiness and will no doubt augment the confidence of potential foreign investors looking to diversify supply chains into the region, in our view.

Appendix

MSCI AC Asia ex Japan price-to-earnings

MSCI AC Asia ex Japan price-to-earnings

MSCI AC Asia ex Japan price-to-book

MSCI AC Asia ex Japan Price-to-Book

Source: Bloomberg, 30 June 2020. Ratios are computed in USD. The horizontal lines represent the average (the middle line) and one standard deviation on either side of this average for the period shown. Past performance is not necessarily indicative of future performance.