Why Asia-Pacific equities are lagging

Asian equities markets haven’t kept pace with gains in the U.S. and Europe this year, as a different approach to Covid-19 and other factors have led to a slower recovery.

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However, Amber Sinha, senior portfolio manager of global equities at CIBC Asset Management, remains optimistic about Asia’s markets moving forward.  

“Covid is a different experience in Asia-Pacific than it is here,” Sinha said in an interview last month. “So, in that sense the markets and the economy have behaved rather differently.”

The MSCI Asia Pacific index is up 2.45% year to date, compared to gains of around 17% for the Euro Stoxx 50 and 18% for the S&P 500.

While the Covid situation in larger economies such as Japan, Korea, China, Hong Kong and Singapore is similar to that in North America and Europe, Sinha said, government approaches have differed. 

Western governments have prioritized vaccination and moved away from restrictions, while some governments in the Asia-Pacific region have been more focused on eradicating Covid, said Sinha, who manages the CIBC Asia Pacific Fund.

“People haven’t been able to get out and the recovery for the economy has been delayed,” he said. “That’s certainly reflected in Asian stock prices and would explain some of the underperformance.”

Sinha also pointed to the Chinese government’s crackdown on technology companies. Tech giants Alibaba and Tencent have experienced significant declines in their stock prices after being targeted by the government, which has affected Asian indexes. 

“It really doesn’t impact the economy much, but the stock market has been impacted,” Sinha said. 

The decline has spread beyond the tech giants to the sector more broadly, he said. Even higher-quality companies that haven’t been targeted have seen their stock prices suffer. Sinha said this could present an opportunity to take advantage of the volatility and find tech companies “that are not in the government’s cross-hairs and [are] actually enablers in terms of the goals and aspirations of that country.”

Another industry Sinha pointed to is travel. Because of the different levels of government restrictions in Asia, travel-related stocks have been slow to recover.

However, similar to Europe, this provides investors with an opportunity.   

“If we believe that the world at some point will be past the pandemic, and it certainly seems to be the assumption that people are making in the West, then it’s hard to see why Asia cannot overcome it as well,” said Sinha. “So that will be another area where we are kind of looking for opportunities.”

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Maddie Johnson

Maddie is a freelance writer and editor who has been reporting for Advisor.ca since 2019.