With Asia being the first region to be hit by the coronavirus pandemic, it is also expected to be the first to recover globally, according to Esty Dwek, Geneva-based head of macro strategy for investment solutions at Natixis Investment Managers.
“It is a first in and first out situation, and markets in Asia have tended to manage the situation better than a lot of other regions, as they have become a little stricter in terms of their confinement rules,” Dwek said in a recent webinar organised by the firm.
Given this view, Dwek believes that assets in the region, including equities and fixed income, will outperform most of their regional peers in the short- to medium-term.
“We think Asia is going to be among the winners. In some of the [mixed-asset] portfolios that we run, we have put overweights in emerging Asia versus the rest of emerging markets,” she said, but did not elaborate further on the portfolios. Natixis IM, which manages $1.04bn in assets, is a multi-boutique asset manager with at least 18 affiliates, according to its website.
Within Asia, Dwek singled out China, which she expects to remain resilient even if other markets haven’t fully recovered from the outbreak.
“It is already trying to move on to the crisis and is ramping up economic activity. Even if global demand remains sluggish, domestic demand in China is quite big and should help improve its economy.
“China’s stock markets have also been one of the winners so far this year. Its bond market has also been resilient, as you are getting decent yields compared to pretty much everywhere else in the world,” she added.
In terms of sectors, Dwek believes that healthcare and technology companies globally are the “obvious structural winners”. However, while both sectors have outperformed their peers, she warned that not all stocks are performing well.
“The dispersion between sectors have been big, but the dispersion between stocks have also been rising.
“Stay at home businesses, for example, will probably benefit more in the medium-term,” she said.
Similarly, Pictet Wealth also recommended investors to be mindful of taking broad exposure to these sectors.
“We are positive and constructive on the healthcare space. But we have to be mindful that not the whole healthcare sector is going to benefit from the pandemic,” David Gaud, Singapore-based chief investment officer and head of discretionary portfolio management for Asia at Pictet Wealth Management, said recently.
But don’t be too optimistic
However, Natixis IM’s Dwek noted that investors should not be overly optimistic and to keep an eye on the earnings of companies, not only in Asia, but globally.
“The markets have become complacent at the moment. For example, you have seen [a nearly 30%] rally in the US equity market since the March lows, which means valuations are back to February levels.
“But we do not know how bad the earnings are going to be and investors might be underestimating some of the risks that are ahead.”
Overall, Dwek expects that the global economy will recover at a slow pace.
“Recovery is going to be more gradual than what we had expected a few months ago, as we hoped that it might be a V-shape recovery.
“It will take some time for the global economy to recover, as you are going to see different regions and industries reopening up at different levels.”
