It’s well-known that the coronavirus originated in Wuhan, China, with nations throughout Asia amongst the first to be affected by the pandemic. This caused significant economic and financial market decline during the first two quarters of 2020, with stock performance particularly impacted in the first half of the year.
Despite the short-term damage done to ASEAN stocks and economies, however, a number of emerging entities in the region have helped to drive a robust recovery in quarter three. Take Vietnam, for example, which is one of the few countries that’s forecast to record positive economic growth before the end of 2020.
This highlights the underlying strength and robustness of Asia’s markets, with emerging economies in the Southeast particularly impressive. But why else is Asia a deceptively attractive investment destination for traders, and is it really worth committing to this region’s assets in the current climate?
The Deceptive Growth of the Asian Stock Market
While investors often focus on regions such as Europe and the US when creating investment portfolios, Asia-Pacific nations (excluding Japan) comprise 13% of the MSCI All Country World index.
They also account for more than 50% of the world’s population, making the regions a dominant source of leading industry talent and innovation.
In the case of Japan, it should also be noted that the nation’s ground-breaking trade deal with the EU covers nearly one-third of global GDP, alongside the small matter of 635 million people.
This is particularly important from the perspective of investors, especially those who can remember Japan’s stock market decline throughout the late nineties and early noughties. After all, while this laid the foundation for sustained and pronounced economic growth in aforementioned Southeast Asian economies like Vietnam, it also struck a note of caution for investors and encouraged them to seek out alternative marketplaces.
However, the fact remains that Asia’s high and largely consistent economic growth over the last 30 years has set the region apart from the America’s, Africa and Europe, creating huge potential for investors that remains to this day.
Stock Market Performance in Asia – Appraising the Opportunity for Investors
Strangely, such growth hasn’t always translated into stock market growth in Asia, with China’s various assets and indices having lagged behind their counterparts in India over the course of the last 20 years or more.
This has created a barrier between investors and the Asian markets, with the issue having been compounded further by the performance of relevant indexes in the wake of the coronavirus pandemic.
The Singapore Straits Times Index (STI) was the hardest hit falling by 22% in the three months to March 2020. The Bursa Malaysia (KLSE) was also hit badly, as sentiment dwindled and investors sought flight as a way of safeguarding their capital.
However, the latter index has also helped to showcase the robust growth of Asian stocks, recovering to just under pre-pandemic levels by the end of quarter three.
Additionally, the early year decline will have enabled savvy investors to target potentially devalued (or undervalued) stocks and capitalise on their subsequent resurgence throughout 2020.
Not only this; but the pandemic has also driven substantial growth in some underrated industries in Southeast Asian nations, particularly as many have been forced to react to the closure of international borders and dramatically reduced tourism revenues.
In the case of Vietnam, for example, the nation has seen a huge uptick in electronics manufacturing and exports in the second half of the year, with firms such as Google and LG locating their smartphone production operations here of late.
On top of that, the Vietnamese economy actually received a boost on the back of a significant increase in the number of people working from home due to the pandemic.
“People have bought a new laptop computer or they’ve bought new office furniture, for both working and spending more time at home. Well, a lot of those products are made in Vietnam,” Michael Kokalari, chief economist for Vinacapital, told BBC News.
And the figures reflect that uptick in activity, with Vietnam’s electronic exports to the US up 26% for the first three quarters of 2020 compared to the same period in 2019.
Trends such as these undoubtedly offer unique opportunities for investors, particularly those who want to build a broader portfolio of stocks within the Asia-Pacific region.