Why Asia’s latest coronavirus waves shouldn’t worry equity investors

The global strategic position of East Asia’s chip makers, coupled with the appeal of digitalisation as a long-term trend, bode well for Asian equities

While the surge in infections across the region is cause for concern, there are good reasons for investors to remain upbeat on Asia

Reading Time:3 minutes

Passengers watch military personnel spray disinfectant on a train in Taipei on May 25. Photo: EPA-EFE

Published: 2:30pm, 3 Jun 2021Updated: 10:30pm, 3 Jun 2021

For a region whose success in keeping the Covid-19 pandemic at bay was one of the main reasons behind the outperformance of its stock markets in 2020, Asia has turned out to be a disappointment for global equity investors this year.

While the MSCI All-Country World Index, a gauge of stocks in developed and developing economies, is up 11 per cent this year, the MSCI Asia Pacific Index has risen just 5 per cent. At one point last month, Asian shares briefly entered correction territory – a fall of 10 per cent or more from the most recent high – in a sign of the severity of the slump.

The underperformance of Asian stocks is widely attributed to the surge in infections across the region. While India’s ferocious second wave is worse than the other major outbreaks the world has suffered, it is the sharp rise in cases in countries that were considered exemplars of effective containment, such as Taiwan and Singapore, that has knocked sentiment.

What is particularly concerning about the multiple outbreaks across the region is that both high- and low-income countries are affected. Even in places with plenty of vaccines available, such as Hong Kong, complacency and misinformation are stymieing immunisation campaigns.

Last month’s sharp sell-off in the Taiex, Taiwan’s benchmark stock index, was a reminder that insufficient testing capacity can compromise even the strictest containment measures.

However, the dramatic increases in asset prices during the pandemic showed that infection rates were never the key determinant of sentiment. Other factors, notably the surge in global liquidity and the strength of the recovery, have had a much bigger impact.

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