As Covid-19 sweeps across the globe, a recession looks unavoidable.
The issue across Asia now is the second-order impacts of the crisis. These include developed market growth taking a hit as this has now become a global crisis; new cases being reintroduced into the region from returning nationals which could stymie the uptick in activity levels; and supply chain ramifications.
From an investment standpoint, this changes not just the short-term but also the medium-term outlook. Over the shorter term, defensive positioning has clearly been correct, with investors fleeing to perceived quality names.
To this end, we prefer companies with ‘fortress' balance sheets able to withstand potential liquidity shocks.
Over the medium-term, to draw a parallel with the Global Financial Crisis, we believe markets will have a similar trajectory coming out of the current crisis, namely with value and higher beta names initially outperforming.
Over the long term, just as the GFC caused financial institutions to bolster their balance sheets it is possible that this pandemic's aftermath prompts both countries and corporations to bolster their supply-chain resilience.
We had already started to see the beginning of onshoring and this is now likely to accelerate.
Given that globalisation has been widely perceived to have driven emerging market growth, the natural question to ask is whether the EM growth train will come to a screeching to a halt.
The answer is that it is unlikely to be as simple as that.
All changes create opportunities, and the start of onshoring is no exception. Similarly, over the long term, there is likely to be an increase in technology expenditure.
In China's case specifically, the emphasis on 5G, data centres and AI among other things is likely to increase again, providing investment opportunities albeit different to the ones we have seen so far.
Avo Ora, manager of the Pictet Asia ex Japan fund
• Different and more diversified investment opportunities notably linked to technology and also opportunities outside of China
• Increased push to e-commerce
• Potential hardening of attitudes along geopolitical lines
• A muddier picture relative to the one painted at the start of the year following the positive developments linked to the Phase I trade deal