The global economy is under renewed stress as coronavirus cases surge around the world, and the Asia-Pacific region is no different.
Amber Sinha, senior portfolio manager of global equities at CIBC Asset Management, says that in previous Covid waves, Asia has generally lagged behind other regions. “It’s largely because of their approach towards the pandemic,” he said in an interview.
Since the beginning of 2020, the MSCI Asia Pacific Index has trailed the MSCI World Index quite significantly, Sinha said, up 19% over the period compared to 42% for world stocks.
The Asia Pacific index finished 2021 down 1.19% in U.S. dollars, while the MSCI World Index was up 22.35%.
Northern Asian economies — including Japan, South Korea, Taiwan, China and Hong Kong — have imposed greater pandemic restrictions, in some cases adopting “zero-Covid” policies, Sinha said. “That kind of a cautious approach certainly makes the economic recovery take even longer.”
In India and Southeast Asia, lower vaccination rates, a lack of adequate hospital infrastructure and “subpar enforcement” have taken a toll, he said.
Leisure and travel companies have been hit the hardest, said Sinha, but he also hasn’t seen retail return the way it has in the West. One reason for that could be a lack of government support and no spike in the savings rate in Asia. As a result, Asia didn’t see demand strengthen the way it did in the West, Sinha said.
Secondly, Sinha said e-commerce is less developed in large parts of Asia. When lockdowns are extended around the world, most consumers turn to e-commerce, but “not so much in Asia,” said Sinha, which has resulted in weakness in the retail sector.
Further, Asian benchmarks often have a high rating for Chinese technology stocks, which were hit hard in 2021 not so much because of the pandemic, but from government regulation.
“The increased interest of the government in the operating models for these companies has weighed on these stocks,” said Sinha.
And because Chinese internet companies such as Alibaba and Tencent are very large parts of the MSCI Asia Pacific Index, they dragged down the overall performance.
Finally, supply chain issues weighed on large automakers in Asia. While automobile demand has been strong, Japanese and Korean auto companies have not been able to realize the full upside due to supply chain and semiconductor issues, Sinha said.
However, Sinha said all hope is not lost. “Because of the share underperformance of the Asia Pacific market during Covid, if the world does at some point move past Covid, I think the outcomes in Asia can be quite profitable,” he said.
He likes companies such as Toyota and Sony that have exposure to global markets where demand remains strong. Any issues that these companies currently face are likely due to supply, “so as the supply side gets fixed, I think there are some Japanese companies that will tend to do very well in that environment,” said Sinha.
The semiconductor industry — where Japan, Korea and Taiwan play a leading role in global production — is another strong play, and Sinha also likes certain companies in the robotics and automation sectors.
“The pandemic will definitely pull forward the demand for their equipment,” he said, adding that automation is going to be a more structural trend going forward.
Last but not least, Sinha said there could be some opportunity in Chinese technology stocks.
“They have declined in value quite significantly, and that’s because there is expected to be more oversight by the government, which can only be a negative for their returns,” he said.
However, he added that “it’s definitely worthwhile to be looking around for stocks that have sold off more than they deserve.”
This article is part of the AdvisorToGo program, powered by CIBC. It was written without input from the sponsor.