Although global growth remains under pressure from the Covid-19 lockdown, the rally in global equities, including Asia, is expected to continue, according to Tan Min Lan, UBS Wealth Management’s Singapore-based Asia-Pacific chief investment officer.
“There is an apparent disconnect between markets and the economy. [While GDP figures have contracted], global equities have rallied about 40% from their March lows. This is because markets are forward-looking and will often look past the immediate damage so long as we can draw a line under the crisis,” she said during a recent media briefing.
Tan expects a broad economic recovery starting in the third quarter, with business activity normalising by the first half next year.
“Most economies will be lifting economic restrictions over the next few months, although softer restrictions are going to stay in place,” she added.
With a more positive outlook on the global economy, Tan believes that equities on average are likely to provide positive returns in the next 12 months.
While Tan estimates that global earnings growth will contract 21% for the full year 2020, she expects a 25% rebound in 2021.
Her outlook is also positive for Asia ex-Japan stocks, with average corporate earnings expected to be up 18% next year from -2% for the full year 2020. She also noted that the asset class has attractive valuations and is trading at 1.4x on a price-to-book basis, which compares with its 10-year average of 1.6x.
Within the region, Tan’s preferred markets include Singapore, China and India.
Singapore and India have become the largest underperformers in the region, with the MSCI Singapore Index returning -18.94% and the MSCI India Index returning -20.1%, according to data from FE Fundinfo.
However, Tan believes that the valuations in both markets have become attractive and companies are trading lower compared with their historical levels.
“We are positive that when a market re-opens, value stocks that have been hurt, [such as those in Singapore and India], are going to play catch-up. So there is an opportunity for a catch-up trade.”
Tan also prefers value stocks outside of the region, which include the UK, Germany, Eurozone industrials and US mid-caps.
China, on the other hand, has so far provided positive returns, with the MSCI China Index performing 1.6% this year, according to FE Fundinfo.
“It is a slight negative for China equities because they have done so much better than everyone else. But from a bottom-up perspective, there are a lot of opportunities, especially companies that play on long-term trends, including digitalisation,” she said.
On the flipside, Tan’s least preferred markets in Asia include Thailand and Hong Kong.
“Thailand is very impacted by the tourism side of things. So until we see some level of an accelerated rebound in the region, we think Thailand’s recovery will take quite a while.
“For Hong Kong, it is a combination of the US-China trade tensions as well as the unresolved social protests, which have largely impacted the market’s retail and property sectors,” she said.