Page 16 - DIY Investor Magazine - Issue 28

HOW ASIAN STOCK MARKETS SHOOK OFF THE PANDEMIC Asian shares have benefited from the region’s effective handling of the pandemic, but what comes next? By Matthew Dobbs, Fund Manager, Asian Equities and Head of Global Small Cap and Richard Sennitt, Fund Manager, Pacific Equities and Global Small Cap Features It seems ancient history now, but 2020 opened with a high degree of optimism for Asian markets. True, valuations were no more than reasonable given the share price gains of the previous twelve months, but conditions appeared favourable and there was a widespread consensus on a global economic recovery and a strong year ahead for corporate earnings. Well, it is obvious in hindsight that Mr Market was wrong – or was he? The fact is that for those who held their nerve in the spring (and even more for those who used that turmoil to pick up cheap bargains and great companies being thrown out in the panic) it turned out to be a vintage year. All in all, 2020 was an extreme example of cutting through the noise and focusing on the long term. ASIA RISES TO THE CHALLENGE Of course, it is never simple. The spring months seemed to present an existential threat perhaps even to humanity itself, a “Day of the Triffids” moment. As it turned out, Asia has proved well up to the challenge. ‘2020 WAS AN EXTREME EXAMPLE OF CUTTING THROUGH THE NOISE AND FOCUSING ON THE LONG TERM’ Many of the more advanced Asian economies have dealt with the pandemic efficiently and effectively. Those who cite different culture and a more conformist mindset might want to reflect on the large scale events taking place in many countries in the region, even if crowds have temporarily been kept away from the Australian Open. If the US had emulated Taiwan in the minimisation of fatalities, only some 100 US citizens would have died against the over 400,000 that have. Of course, not every Asian country has the resource and institutional depth to respond, but in the case of India and much of the ASEAN region, young populations are proving resilient (ASEAN is the Association of Southeast Asian Nations). ‘VIRTUAL WORK, VIRTUAL PLAY, VIRTUAL SHOPPING, VIRTUAL EVERYTHING’ GOING VIRTUAL Asia was also remarkably adept at re-invigorating and adjusting supply chains. While economies exposed to services (fluff rather than stuff) suffered as travel, tourism, bricks and mortar retail collapsed, hard exports (i.e. goods) have been surprisingly strong. With inventories lean, corporate earnings have proved at the least resilient and in some cases remarkably robust. This has been particularly true in the information technology complex as the world has gone virtual: virtual work, virtual play, virtual shopping, virtual everything. Adding to the mix has been a very benign global liquidity backdrop, led by the US Federal Reserve whose asset purchases and low interest rates have helped support the financial system. This has been accompanied by extraordinary levels of fiscal activism with governments supporting people’s incomes. DIY Investor Magazine | Apr 2021 16