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Travel and tourism is expected to recover in 2022 as more people are vaccinated and countries start to codify vaccine passports. Photo: Getty

Asia set to lead global growth in 2022 as travel rebounds amid easing of Covid-19 pandemic restrictions

  • Asian equity markets outshone the rest of the world in 2021 after a spree of new listings even as China cracked down on major digital players
  • Travel and tourism is expected to start recovering in 2002 as vaccination rates pick up and vaccine passports are codified
David Ho

This article was part of a special supplement on private banking which was published in the South China Morning Post print edition on October 20, 2021.

Even as Goldman Sachs slashed its 2022 growth forecast for the United States, many analysts remain optimistic about prospects for the year with the Asian region showing encouraging signs over the past three quarters. Even so, 2021 has been a mixed bag for Asia with Covid-19 infections surging in many countries after largely being contained in 2020.

“Asia’s equity markets were the world’s best performers during the first half of the year and continued their winning run into the third quarter on the back of a spree of IPOs,” says Swarup Gupta, financial services industry manager at market consultancy The Economist Intelligence Unit (EIU). “This was the best third quarter for IPOs in Asia, largely on the back of record-breaking deals in South Korea and Asia, tempered by the quiet mood in Hong Kong following China’s regulatory crackdown on dominant digital companies.”

Goldman Sachs cut its US gross domestic product projection for 2021 to 5.6 per cent from 5.7 per cent, having already slashed that figure down from 6.2 per cent in September.

In terms of medium-term growth forecasts, they expect GDP to grow at a 4 per cent rate next year, down from 4.4 per cent after this year’s fourth-quarter projection was revised to 4.5 per cent from 5 per cent.

Goldman Sachs cut its US gross domestic product projection for 2021 to 5.6 per cent from 5.7 per cent. Photo: AFP

Although Asia, for the most part, managed to limit the damage caused by the Covid-19 pandemic in 2020, the coronavirus returned with a vengeance in many parts of the region in 2021.

“Lockdown measures will be less stringent than in 2020 but governments will also offer policy support for companies and households,” Gupta says. “Inflation will largely remain in check across the Asia-Pacific region, which means that central banks will maintain an accommodative stance that in turn will assist equity investors who can expect the rest of the year to be promising.”

The debt troubles of the Evergrande Group should serve as a reminder of the importance of diversification. Photo: Reuters

The bumps and bruises from last year, though, have carried on to 2021 with new challenges also being presented.

“Investment themes for 2021 have been centred around the emergence of rising inflation, most recently going hand in hand with an energy crisis, investor concerns about tapering and interest rates, and more locally, the regulatory clean-up around the Evergrande crisis in China,” says Martin W Hennecke, Asia investment director at wealth management firm St James’s Place.

A sharp drop in Chinese high-yield bonds resulting, in particular, from the debt troubles of the Evergrande Group should serve as a reminder of the importance of diversification. Even with these challenges in 2021, the consensus for 2022 is one of optimism.

Vaccinations are increasing as the world looks forward to a post-Covid-19 future. Photo: AAP

“The investment outlook for 2022 remains largely positive, but investors will have to carefully assess individual markets across the region since their performance will be widely divergent in line with differential vaccination rates and supportive policy measures,” says Gupta.

He points to the slow vaccine roll-outs in many Asian countries and uncertainty surrounding the epidemiological path of the virus as posing “considerable downside risks” to the EIU’s GDP projections for 2022.

“If responses to surges of Covid-19 are more prolonged and stringent than in 2020, they will exert a drag on the region’s overall performance. Investors should also watch out for supply chain disruptions, particularly those related to semiconductors,” says Gupta.

Supply chain services may be among the sectors that benefit from the wave of digitalisation. Photo: Bloomberg

“Fortunately, fiscal and monetary policy remain accommodative across the region. Central banks in Asia have kept their policy interest rates at record lows or have continued to pursue quantitative easing, such as in New Zealand and Australia.”

He feels sectors benefiting from the wave of digitalisation that accompanied the pandemic will thrive in 2022 and beyond. These include fintech, online sales, delivery and supply chain services providers, tele-health, companies gaining from the rise of electric vehicles, and the growing awareness of ESG standards.

“Travel and tourism, which suffered heavy losses due to the pandemic, will rebound next year as vaccination rates pick up and vaccine passport norms are codified further,” says Gupta.

Video conferencing may have a major impact on business travel when the Covid-19 pandemic eases. Photo: Edmond So

But industries such as brick and mortar retail, which have lost out owing to the wider adoption of digital channels, will continue to struggle next year.

“Similarly, a large proportion of business travel will give way to video calls and online collaboration tools and will take a longer time to rebound than leisure travel, with some forms of business travel falling out of favour permanently,” says Gupta.

Apart from the usual uncertainty around issues such as global geopolitical risks, Covid-19 recovery, the energy crisis, debt ceiling and the wider infrastructure package in the US, a major concern for 2022 still not fully appreciated by many investors is the high debt and deficit burdens at some of the world’s largest economies, including the US and major Eurozone countries.

China and Hong Kong economies have been among the weaker performs globally but this is unlikely to repeat in the coming years. Photo: AFP

“The situation may hinder central bankers’ ability to manoeuvre in terms of tapering and raising interest rates, even if inflation should take hold, simply because significantly higher interest rates would exacerbate those countries’ debt burdens. As a result, it may turn out that inflation becomes structural and much less transitory than most still assume today,” says Hennecke.

Asia is likely to see stronger performance this year, he says. “China and Hong Kong have been among the weakest performers globally so far in 2021, but this may not repeat in the coming years,” says Hennecke.

“We advocate for global diversification at all times and would not suggest investors to shun those markets now, noting that at least some of the regulatory changes could actually turn out to have medium to long-term benefits in terms of the country’s demographics challenge and the sustainability of economic growth.”

The China economy is likely to see stronger growth in 2022 with other Asian economies likely to benefit. Photo: Reuters

Others agree China is likely to see a stronger 2022, with a trickle-down effect to other Asian economies. “We expect China to remain the top destination for FDI given its rapidly growing domestic market.” says Sian Fenner, lead Asia economist at market intelligence company Oxford Economics.

“As supply chains continue to adjust to higher labour costs in China and trade protectionism, we anticipate Southeast Asia, notably Vietnam, to be the key beneficiary. The region is well established in global supply chains, and its labour dynamics and openness to trade and FDI remain very favourable.

“We believe prospects for FDI inflows into Asia-Pacific over the medium term remain strong, even though pandemic-driven supply disruptions and uncertainties over the pace of recovery may see some firms rethink their supply chains.”

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