Asian equity markets underperformed their US and European peers in 2021, mainly due to the tightening of monetary policy, new government regulations, and a zero-tolerance policy on the Covid pandemic in China, and significantly less fiscal support throughout the region, said DWS at a media briefing.
But the German asset manager believes things will take a turn for the better in the coming year.
“We are beginning to see countries such as Singapore, Thailand, and Japan opening up. The reversal of the zero-case policy in these countries will provide a boost to economic growth and equity market performance,” said Sean Taylor, CIO Apac, global head emerging market equities at DWS.
Within Apac, he favours Japan because of its cheap valuations and good earnings.
The Japanese economy, especially private consumption, has long been on the back burner because of covid restrictions, but that could change next year, Taylor believes.
The land of the rising sun has delivered positive corporate earnings and ended its state of emergency in October. Taylor also believes the $350bn economic stimulus package, which accounts for 10% of Japan’s GDP, will give the country’s economy a lift.
India is another of his favourite in Asia.
“In particular, fiscal and labour market reforms in India are likely to boost growth. The country has huge potential, especially in the technology sector,” he said.
“In the current year, the Indian start-up scene has grown significantly, mobilising $32bn, 66% more capital than in 2020,” Taylor said.
Also benefitting from the travel return are Indonesia and Thailand, two countries which have been dependent on trade and tourism.
On the other hand, the Taylor is more cautious about Taiwan and Korea, where stock prices are “relatively overvalued”.
Taylor advised patience from investors who wish to increase exposure to Chinese equities, as the country is among the few around the world to still adopt a zero-Covid policy.
He expects lockdown measures to drag on until the end of the first quarter of 2022, weighing on corporate earnings.
He believes the regulatory crackdown is not yet over in the short term, which brings uncertainty and volatility to the market. But the outlook is better in the medium and long term, with China placing more emphasis on quality growth rather than on quantity.