Light equipment at Guangzhou 2020 International Live Streaming Industry Expo on December 27, 2020.
Photographer: VCG via Getty Images
Photographer: VCG via Getty Images
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After closely beating its US peers for the first time in three years in 2020, Asian stocks may see another strong year, analysts say.
Asia’s top performance is expected to continue in 2021, with cyclical recovery expected up until technology stocks as optimism about vaccine release grows. Analysts predict, on average, that the MSCI Asia Pacific index will increase by about 9% in the next 12 months, against an estimated 8% gain for the S&P 500 index, Bloomberg research shows.
The strengthening of the economic recovery in China and the low valuations of Asia in relation to the USA and Europe are also important positive points that help regional actions to overcome the potential risks arising from new virus outbreaks, obstacles in the distribution of vaccines and worsening relations Chinese-American.
“Asian stocks will be the asset class of choice in 2021,” said Gary Dugan, CEO of the Global CIO Office in Singapore. “The fundamentals of growth and the ability to recover quickly as Covid’s problems make the region particularly attractive.”
S&P 500 it sank further since the end of October on Monday, when investors weighed the possibility of a slower-than-expected economic recovery amid a global increase in Covid-19 infections. Even so, the MSCI Asia Pacific indicator rose 0.2% on Tuesday.
Here are five themes that Asian equity investors say are the key to their strategy in 2021:
Green is good
Investing in environmental, social and governance bases should yield benefits, thanks to a series of favorable government policies.
Take renewable energy, for example. China, Japan and Korea are striving to become carbon neutral in this century, as the United States prepares for a climate-friendly president to take control.
“Renewable energy has never been cheaper,” said David Smith, portfolio manager at Aberdeen Standard Investments Asia. “China’s recent promise to be a zero net emitter of greenhouse gases by 2060 has given impetus to the case.”
Actions linked to solar and wind energy may get a boost with China updates its climate objectives. Meanwhile, India plans to have 40% of its energy generation from non-fossil sources by the end of the decade, which should help companies in the sector.
Electric vehicles are still hot. The energy transition fund of BNP Paribas is among those betting on shares in the electric vehicle supply chain, which includes Korean battery manufacturers like LG Chem Ltd. and companies involved with hydrogen fuel cell technology. Japan’s auto stocks are in focus as the country prepares for eliminate new gasoline cars by the mid-2030s.
It’s Really Value’s turn
Value stocks have declined and rebounded repeatedly over the past decade, but this time, investors are expecting a more robust recovery from stocks that look cheap on measures like price / earnings or price / book value multiples. Except for widespread blockages, the recovery of stocks in the old economy that were avoided by investors who migrated to pandemic games like technology and health is set to continue.
Investors seeking exposure to companies that will benefit from the normalization of business activity are acquiring shares in banks, industries and discretionary consumers – heavyweights on the MSCI Asia Pacific index. BlackRock Inc.’s funds for UBS Asset Management are disclosing shares in Southeast Asia and India as part of its trade recovery manual.
It is not just the sectors that can benefit from the rotation in value; Cheap markets also stand to gain.
Analysts estimate that the Singapore Straits Times Index, Asia’s top national worst performing indicator last year, could gain 10% over 2021, driven by the signing of the world’s largest regional trade pact at the end of last year.
Another market that has been avoided but is falling in love: Japan. Foreign investors are seen returning to Japan’s cyclical heavy stock market, driven by Warren Buffett’s $ 6 billion bet on the country’s commercial houses and expectations of policy changes under Prime Minister Yoshihide Suga.
These are the winners and losers in Japan’s stock market in 2020
Technology is still your friend
This is not to say that technology – the hottest trade in 2020 – is taking second place. The pandemic has accelerated trends like e-commerce and remote work, which means Taiwanese and Korean Chip makers, Internet names in China and data center stocks are among the favorites in the new year.
M&G Investments is among the asset managers investing in game content developers in Japan, Korea and China. Nintendo Co., maker of the hit game Animal Crossing, rose 50% last year, while Sony Corp., known for the Playstation console, rose 39%.
Japan’s technology stocks are also set to benefit from the Suga administration’s digital reform agenda, which aims to transform the country’s inefficient and heavy public sector.
That said, there is one caveat to this trend: regulation. China stepped up scrutiny of billionaire Jack Ma’s Internet empire, initiating an investigation into alleged monopoly practices at Alibaba Group Holding Ltd., and also ordered the affiliate Ant Group Co. review your operations.
Is concerned that antitrust scrutiny will extend beyond Ma, the companies have weighed in on the shares of Alibaba and its rivals, such as Tencent Holdings Ltd. and food delivery giant Meituan.
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Dividend drought should end
Dividend stocks are expected to return in 2021, as companies loosen the stock market strings. Another catalyst is the easing of regulatory restrictions imposed on bank payments to conserve capital in the midst of the pandemic.
Payments in Australian and Thai creditors can grow after the lifting related restrictions, and the same goes for dividends at HSBC Holdings Plc and Standard Chartered Plc after the UK facilitated its ban. Singapore banks, which have long had a reputation for being generous with payments, can get back in the game as soon as the country the regulator follows suit.
Double-digit increases in Asian dividends “are more than possible,” said Mike Kerley, portfolio manager at Janus Henderson Investors.
The banking sector is not the only space that investors are looking at here. Stocks of materials, such as Australian mining companies gaining from a boom in commodity prices, as well as stocks of consumer goods, may increase, Kerley said.
China deleveraging is back
After a series of ties defaults in companies linked to the state, China is focusing once again on stabilizing debt levels and tightening liquidity in its financial system.
This is bad news for China’s brokers – a source of margin finance and a barometer of stock market sentiment. Companies listed on the high-tech ChiNext board of Shenzhen and other small-cap stocks in the country may also face selling pressure, as they are vulnerable to outflow of liquidity from the system.
China tells inefficient companies to toughen up or prepare for failure
However, in addition to the short term pain, the insignificant trend is likely to lead to a better quality of Chinese banks’ assets, boosting their shares. Investors will be on the lookout for deleveraging plans at the annual meeting of the National People’s Congress of China in March.
– With the help of Amanda Wang and Sofia Horta e Costa
(Updates the estimates in the second paragraph, the performance of the Asia index in the fifth paragraph.)