The allure of Asian stocks is fading after beating global peers last year.
While 2021 began with investors expecting regional stocks to continue leading the global equity rebound as vaccine rollouts gather pace, that conviction now seems to be in short supply owing to a selloff in Chinese shares and concerns over dollar strength, Bloomberg reports.
The MSCI Asia Pacific Index is up by just 3.1 percent year-to-date, compared with a gain of almost 10 percent each for equity benchmarks in the U.S. and Europe.
The recent jump in real U.S. Treasury yields has put a squeeze on risk assets and prompted money managers to rethink geographic and cyclical exposure in their portfolios. Higher yields are also raising the odds of a stronger US dollar – a traditional negative for emerging Asia investors – just when the worst rout in years in China, the world’s second-biggest stock market, has soured sentiment.
“It is hard to see a catalyst for Asia regaining equity-market leadership without a more supportive policy backdrop in China or a reversal of the reflationary market sentiment we have seen in 2021,” said Nick Watson, a portfolio manager at Janus Henderson Investors. “On a regional basis, the 2021 returns from Chinese equities have weighted heavily on the wider index.”
Investors are already shying away from making big bets, with intraday swings in the Asian index slipping to the lowest since the start of 2021. China’s CSI 300 Index is down by more than 13 percent from a 13-year high reached in February amid concerns over valuations and potential liquidity tightening.
Much of the growth recovery in Asia has been priced in, said Patrik Schowitz, global multi-asset strategist at JPMorgan Asset Management. It downgraded emerging Asia to neutral from overweight “driven mostly by a less bullish view on Chinese equities,” he said.
Also hurting Asia’s prospects is a resurgence in coronavirus disease and vaccine shortages in some countries. The recent jump in infections in Japan, India, Thailand and Philippines has weighed on their equity performance.
Asia “is a less positive coronavirus disease story than the U.S. and U.K.,” said Watson. “Unlike other growth markets such as the U.S., investors in Chinese equities are unlikely to find much support from the central bank as authorities try to avoid fueling a stock-market bubble,” he said.