- Equity markets quite quickly found a bottom around late March, shortly after China reported no locally spread infections for the first time since the Wuhan outbreak. For investors in Asia, this was an important signal that the disease spread could be suppressed.
- The shift online of both corporate and consumption activities saw hardware and software technology rise to the occasion, accelerating trends that were already in motion pre crisis. The strength of China’s online ecosystem, which is heavily represented in the China Index, helped support a return to positive economic growth in Q2 as production started to return after the spread of Covid-19 was brought under control. As such, for the full year China is likely to grow 2% in 2020, outperforming developed nations by a wide margin.
- The Trump administration’s continued adversarial approach towards China, including exerting pressure on US allies to stop using Huawei 5G equipment, and measures aimed at restricting supply chains of high-end semiconductor chips and equipment to Chinese companies, forced China to embark on a push towards supply chain self-reliance, particularly in high-tech components.
- Joe Biden’s presidency should see the return of professional US diplomacy, with the effort to “heal America” spilling over to the rest of the world, including in US-China relations and China-Australia relations, though some damage may remain.
If I were to sum up Asia ex Japan equity markets in 2020, it would be the pain of negative headwinds followed by the triumph of human ingenuity and determination in rising above them. This perhaps seems too optimistic a story for such a year, given how the world has suffered from Covid-19, but not too far-fetched if the performance of equity markets can be submitted as a verdict.
Figure 1: Long-term global IG corporate spreads