Asia has been relatively resilient to the coronavirus crisis. As most countries experienced SARS in 2003, they reacted faster and were better prepared to deal with Covid-19 than many of their Western counterparts. North Asia - particularly South Korea, Taiwan and Hong Kong - had few fatalities and has now exited lockdown.
While stimulus by most developed countries has dwarfed GFC levels, Asia has so far not felt the need to follow suit, and the magnitude of stimulus has been far lower than in 2009. Therefore, there is still ample fire power if required. Interest rates in Asia are also higher than in developed economies, so there is scope for further rate cuts, as long as the US dollar does not strengthen significantly. The region is also a major beneficiary of lower oil prices, as most countries are net importers of the commodity.
China, as the first in, first out of the pandemic, is seeing a steady return to normality. This was evidenced by JD.com's 618 online promotion event, where sales volume increased 33% year-on-year. Online penetration in China's lower tier cities is below that of developed countries but looks set to increase as urbanisation continues and demand for e-commerce surges. Moreover, digital transformation has been fast forwarded as a consequence of lockdown measures and remote working.
Meanwhile, US-China tensions and China's aim to be self-sufficient are leading to increased localisation, which is benefiting domestic champions - companies whose customers are Chinese, rather than exporters exposed to tariffs and blacklists. Software companies, such as Kingdee and Yonyou, are beneficiaries of this trend, as well as profiting from the long-term move to digitalisation.
Valuations are reasonable across Asia, which looks cheap relative to developed markets. Many Asian companies are trading on a forward price earnings multiple significantly below that of DM companies and under the historical long-term average discount - a level not seen since the GFC. Central banks are likely to continue to provide ample liquidity and effectively underwrite markets.
We continue to favour companies operating in areas of structural growth with favourable policy tailwinds, such as innovative technology, healthcare - especially health tech - Chinese internet, e-commerce and electric vehicles.
Jane Andrews is founder and CIO of BambuBlack Asset Management - a BennBridge boutique
• Accommodative central banks continue underwriting Asian equities
• Many Asian companies trading on significant discount to DMs
• US-China tensions could escalate ahead of US election
• Stronger US dollar would limit interest rate manoeuvrability in Asia