COVID-19: Are Emerging Asian Markets Ahead of the Curve?

Anindya Chatterjee
Anindya Chatterjee
Senior Vice President and Lead Portfolio Manager

We are experiencing unprecedented selloff in risk assets. It is impossible to model-in the fear psychosis of global consumers, and the impact on real businesses, at this point. Oil and resource-heavy emerging markets like Brazil – Russia – South Africa are down in the range of 48%-40%-32% YTD (based on MSCI Country indices). Through this onslaught, MSCI EM Asia (-15%) has outperformed MSCI World (-25%), MSCI EM (-20%) and S&P 500 (-23%). Here is a quick summary of our thoughts on our domain:  

  • The governments in Asia and the Asian economies are better prepared for pandemics with the past experiences of SARS, and mutated strains of avian flu and swine flu outbreaks. They are likely to contain the spread, and the consumers there are likely to gravitate to normalized economic activities sooner than the rather unprepared Western World.
  • The centrally planned Chinese economy can enforce lockdowns and quarantines more effectively (leaving aside the debate whether they have been transparent or whether they were quick enough to recognize the risk in initial weeks). Similarly, they can institute ‘back to work and normal activities’ enforcement without so much public repercussions – something that can never be enforced in the Western world seamlessly.   
  • China’s economy can contract 8-10% QoQ in 1Q 2020 … YoY GDP growth may slow to 1-2%, in our view.
  • Analysts tracking pollution, transport congestion, daily coal consumption, daily freight movements, property transactions data etc. as anecdotes – all indicate significant contractions in 1Q2020.
  • Our channel checks include conference calls with company managements across Asia. Our team has significantly stepped up the outreach across companies in Asia – not just China. We are doing 2-4 corporate management calls daily. We are hearing that factories in China are back to functioning in 60-80% of normal capacity, demand and supply chain slowdown may restrict output rather than labor shortages.
  • Are there any green shoots anywhere? We do not have demand revival anecdotes yet … but, lockdowns in China are getting eased and we haven’t heard of job losses yet. Consumers are beginning to resurface. Some of the SE Asian markets like Indonesia, Philippines are less impacted – and there is no broad based panic yet. India is less impacted.
  • Softer oil price is a boon for Asia, albeit the overall global concerns and the negative sentiments overshadow that at this point.
  • Any Global recovery in consumer sentiment will be led by Asia, in our view… The virus spread from China and Asia is ahead in the curve in spread and containment, and as we have mentioned above – Asian consumers are likely to shed the panic mode quicker, from their multiple experiences of the past.