Asia is emerging as the epicenter for investor worries over global growth and the spread of COVID-19.
While their peers in the US and Europe remain near record highs, Asian stocks have fallen back in the past few months amid slowing Chinese economic growth and a glacial rollout of vaccines.
The trend accelerated yesterday, with the benchmark MSCI Asia Pacific Index briefly erasing year-to-date gains for the second time in as many months.
“Asia was seen as the poster child in pandemic response last year, but this year the slow vaccination rollout in most countries combined with the arrival of the Delta variant means another lost year,” said Mark Matthews, head of Asia research with Bank Julius Baer & Co in Singapore. “I suspect Asia will continue to lag as long as vaccination rollouts remain at their relatively sluggish levels and high daily new COVID counts prevent them from lifting mobility restrictions.”
The growing jitters in the region comes as investor concerns shift from runaway inflation to an early withdrawal of stimulus by central banks.
China’s authorities earlier this week signaled that they might soon unleash more support for the economy, suggesting that the world’s fastest recovery after a pandemic-induced slump might be weaker than it appears.
A fresh regulatory crackdown on Chinese tech stocks this week has also affected investor sentiment in the region.
The Hang Seng China Enterprises Index yesterday fell briefly into a technical bear market, led by weakness in the sector.
While Asia bore the brunt of the retreat in global equities, havens in other asset classes from Treasuries to the yen have rallied, and the rotation toward economically sensitive cyclical stocks from their high-priced growth counterparts continued to unwind.
“It’s a sign of how challenging the reopening process is,” State Street senior global market strategist Marvin Loh said in an interview with Bloomberg TV. “What the PBOC [People’s Bank of China] is going through, as well as these variants that keep popping up around the world, shows it’s going to be an uneven process,” Loh said. “Maybe a normalization tightening policy is not necessarily going to be as fluid.”
COVID-19 remains a key challenge.
Tokyo has declared a renewed state of emergency to combat the virus, banning spectators from this month’s Olympic Games and pushing the Nikkei 225 Stock Average toward a correction.
South Korea is intensifying social distancing measures in Seoul, while Indonesia is battling a virus resurgence.
“Asian equities are being particularly impacted by the rebound in coronavirus cases in the region, fears about the impact of that on regional growth and concern that we may now have seen the best of the rebound globally,” said Shane Oliver, head of investment strategy with AMP Capital Investors in Sydney. “Asian shares may have led the way on this, but coronavirus concerns may also weigh on global shares generally.”
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