Industry insight: Asian resilience signals sound economic fundamentals

Paras Anand

Sep 10, 2020 – 12.01am

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I read a lot these days about the anticipation of a post-Covid environment. Of course, we all hope it will arrive sooner rather than later.

Intra-Asian trade is accelerating, says Paras Anand, chief investment officer, Asset Management - Asia-Pacific, Fidelity International.

But the reality is that we’re unlikely to experience a definitive end point, given the large variation in the impact of the pandemic in different parts of the world.

While we have been quick to identify the initial economic and societal consequences of the pandemic, we should be conscious that many of its ramifications have yet to emerge or are far from being fully understood.

In that context, it is arguably just as instructive to explore what we have experienced over the past six months and are seeing today as a guide to what remains a highly uncertain future.

As investors, one of the most striking features of the current environment is how well Asia has performed in terms of pandemic management and its economic recovery and look at how this corresponds with stock market returns.

Asia’s resilience today contrasts with so many recent economic and market downturns when the region was, in many cases, hardest hit by the pandemic.

Few would have expected China to be the best performing economy over the last quarter.

This not only speaks to the management of the pandemic but, more importantly, reflects the significant change in the mix and advancement of the Chinese economy.

It also highlights a much lower sensitivity to economic woes in other regions than at any time in recent history.

Turning to markets, while US shares have also continued their run over recent weeks, this has been accompanied by a meaningful fall in the relative value of the US dollar.

Initially this may have surprised some people, as periods of risk aversion and liquidity concerns have historically led to the dollar squeezing higher.

This in turn typically compounds the pressure on Asia and other developing economies globally.

Not so this time. The scale of committed and anticipated monetary and fiscal intervention from the US has led to a different outcome over recent months.

I am aware that there is today a broader consensus around the prospect for US dollar weakness; here it is important to recognise the major headwind the strong US dollar has been for Asia with the decade-long bull run since the 2008 financial crisis.

The weakness we have already seen in the US currency is supportive to economic fundamentals in the region.

Likewise, as trade and economic activity in the region recovers from its nadir earlier in the year, intra-Asian trade - which for most economies in Asia already represents most their exports and imports - is accelerating.

As industries and governments factor in the learnings of the pandemic, proximity will increasingly feature as a factor to overcome the friction of travel and transport in supply chains.

Finally, as we study the current environment, despite the relative immaturity of many of the economies in Asia, their investment in digital infrastructure and connectivity over the past decade has played an important feature both in the management of the pandemic and the functioning of the economy during the most acute phases of lockdown.

As global economic growth becomes largely driven by Asia, we will see an acceleration to Asia. Not just from global investors, many of whom historically have seen the region as a tactical rather than strategic allocation, but also from global companies evolving their products and services to cater for fast-growing but distinct customer tastes.

There is so much that remains unknown about the longer lasting impacts of COVID-19, but we don’t have to look very hard to see that Asia’s time has come.

Paras Anand is chief investment officer, Asia Pacific, Fidelity International.