Asian equities: greater than the sum of its parts

Despite a challenging 2020 for investors, Asian equities was one of the few bright spots in the global markets. After the COVID-19 outbreak, parts of the region contained the virus more effectively than others, leading to a divergence in economic and stock market performance in the second half of the year. We believe that while Asia (ex-Japan) is tapped to strongly rebound in 2021, divergences should remain, providing investors with attractive opportunities in a region that is greater than the sum of its parts.

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The past year posed unprecedented challenges and opportunities for investors. The global outbreak of COVID-19 in the first quarter of 2020 roiled markets and economies alike. Although North Asian economies were the first affected, they were also among the first to effectively contain the spread of the virus, with some managing to avoid entering a technical recession.¹

In contrast, South and Southeast Asian economies were affected later, but due to higher population density and relatively less developed health systems, bore a heavier cost from the pandemic. India and some Association of Southeast Asian (ASEAN) economies, most notably Indonesia, fell into a technical recession for the first time in decades.  

Robust fiscal and monetary stimulus globally and in Asia allowed equities to recover, with regional equity indexes posting a nearly 19.0% return,² but with significant dispersion in performance across the region.³

Moving into 2021, the region is tapped to strongly rebound at roughly 5.5% growth overall;⁴ however, this is due to base effects and we anticipate economic recovery to be gradual and uneven due to varied policy responses as well as divergent access and rollout of vaccines in Asia. 

Chart of range of GDP growth forecasts for Asian economies. The chart shows the divergence in growth forecasts, with some economies expected to grow around 8% this year (the Philippines, China, Malaysia), while others will see growth around the 4% mark (South Korea, Thailand, Taiwan).

Asia: a region of diverse economies and strengths

Before exploring the major regional themes for 2021, it’s important to understand how we view long-term investment opportunities in Asia. Indeed, investors should be vigilant—given the optimistic economic growth forecasts and elevated valuation in some regional equity markets, it’s necessary to understand where sustainable, long-term growth can be achieved rather than a cyclical upswing as economies recover from the shock of COVID-19.   

We envision the region as possessing a diverse array of strengths that offer opportunities for investors with different needs.

Map of Asia, highlighting select economies, and listing the areas whether they enjoy comparative advantage.  China: consumption, e-commerce, infrastructure and localization of supply chain. South Korea: Cosmetics, technology, and electric vehicle batteries. Taiwan, e-sports, technology, technology migration. ASEAN countries: staple food supply, supply chain shift from China. India: consumption, IT outsourcing, active pharmaceutical ingredients.

China: China has adopted a robust policy response in answer to fractious economic relations with the United States that will deepen existing competitive advantages.  

The Chinese government’s newest five-year plan (2021–2025) emphasizes cultivating domestic consumption (over exports) and innovation in key strategic technological industries. This should mean continued emphasis on developing already advanced e-commerce and internet platform capabilities. At the same time, the government wishes to develop technology for electric vehicles (EVs) as well as 5G technology to boost the country’s technological base.  

South Korea: South Korean companies remain leaders in the memory chip, EV, and renewable energy storage sectors. We believe these companies will be at the forefront of the development and structural growth trend of migration to 5G technology, EV, and renewable energy.

India: We remain optimistic about the outlook of the information technology outsourcing and pharmaceutical sectors. These sectors represent India’s core comparative and competitive advantage globally, and we believe the demand for its products and services is structural in nature.

Over the longer term, we’re closely monitoring the opportunities created by the government’s Make in India initiatives. India has announced several measures aimed at boosting the economy’s self-reliance, including import disincentives, production-linked incentives, tax benefits, and digitization, to increase the manufacturing sector’s share in Indian GDP from 17% currently to 25% over the medium term.⁶  

ASEAN: ASEAN countries are strengthening efforts to attract foreign direct investment and deepen their competitive advantages. 

Countries in the region possess different strengths. Thailand has a strong automotive supply chain and a well-established food manufacturing industry. Malaysia possesses an advantage in the manufacturing of electronic and electrical products, rubber gloves, and wooden furniture. In contrast, the Philippines provides great service in terms of business process outsourcing, and Indonesia is positioning itself as the hub for the EV supply chain. Finally, Vietnam has established a niche in the manufacturing of smartphones and electronic components.

Taiwan: The technology supply chain in Taiwan is expected to continue to play an important role in supporting technological innovation in China and the United States over the medium term. The ability of local producers in key industries, such as semiconductors, to stay ahead of the technology curve has given them a competitive advantage over their global rivals. Taiwan has also developed world-class companies in servers, 5G components, and integrated circuit design.  

2021: structural themes for investors

Based on this vision for Asia, we see the following four structural themes as being critical for investors in 2021. 

  • Search for (positive) yield leads to Asia 

We believe that major central banks will keep interest rates near zero over the short term. With inflation forecast to be in positive territory, this has, and should, continue to result in negative real rates and bond yields in many developed markets.

In contrast, many Asian markets currently offer positive real yields. With a relatively optimistic growth forecast in 2021 for the region, we expect the yield differential between developed markets and Asia to continue in the upcoming year. This dynamic should be constructive for capital inflows into Asian equity markets as global investors look to capitalize on the region’s robust economic rebound and attractive yields. 

Chart comparing 10-year nominal yields of Asian government bonds with the equivalent for German, Swiss, Japanese, Australian, and U.S. government bonds, mapped against real yields for each asset. The chart shows that real terms, yields for most Asian government bonds remain positive, with India and the Philippines being the exception.
  • Wider adoption of 5G technology

5G technology promises to transform the 2020s into a time of unprecedented connectivity and technological advancement, dramatically expanding the reach of the Internet of Things (IoT). Indeed, 5G and IoT will enable greater usage of connected devices that automate onerous business processes. This includes factory automation; many manufacturers have announced their plans to automate their factories to overcome the issues of labor shortages and enhance productivity.  

We expect broader availability of devices developed with 5G to be launched in the next few years. This is expected to trigger a replacement cycle globally and we believe the supply chain in Asia, particularly the tech supply chain in North Asia (Taiwan, China, and South Korea), will benefit from this trend.   

  • Greater focus on climate change and sustainable development

With the risks of climate change becoming more apparent, countries are adopting ambitious policies to address the problems.⁸ These initiatives coupled with greater attention to environmental, social, and governance factors in investment decisions should lead to more climate-friendly and sustainable projects, such as renewable energy infrastructure and equipment. As a result, we envisage that the development and adoption of EVs and energy-efficient products should accelerate as well as the ecosystem of renewable energy and resources, such as energy storage, battery charging stations, energy-efficient semiconductors/chips, and recyclable materials. Investments in this area are expected grow significantly.

  • More diversified China+1 sourcing strategy⁹

Global supply chains, and China’s role in them, have undergone significant changes due to the global spread of COVID-19 and the fallout from the prolonged China-U.S. trade conflict. Some firms may shift production out of China (production relocation) on concerns over the vulnerability of single production location or rising tariffs. Others might choose to diversify customers and redirect exports to other markets (trade redirection) in light of geopolitical risks. Southeast Asian countries, particularly Vietnam, have benefited from multinational and Chinese companies relocating or setting up new factories in the region. We expect this trend to continue, and governments in Southeast Asia have introduced incentives and amended regulations.¹⁰


Although parts of Asia have fared better than others after the global shock of COVID-19, the road to recovery—both physical and economic—should remain a key theme of 2021. For long-term investors, Asia offers the opportunity to not only participate in sustainable growth in world-class companies, but also to achieve diversification through exposure to different industries. Overall, the region’s opportunities add up to more than the sum of its diverse parts.


1 China and Taiwan didn’t enter a technical recession, while Hong Kong and Korea did. 2 Bloomberg, as of December 29, 2020. MSCI Asia (ex-Japan) posted a return of 21.84% (total return in U.S. dollars). 3 Bloomberg, as of December 29, 2020. MSCI Korea was the best-performing regional market index, up roughly 40.30% (total return in U.S. dollars), while MSCI Thailand was the worst-performing market index, declining by 10.79% (total return in U.S. dollars). 4 Bloomberg, December 15, 2020. 5 Manulife Investment Management. Goldman Sachs, as of November 15, 2020. 7 Bloomberg, as of November 30, 2020. 8 In a September speech to the United Nations, Chinese President Xi Jinping put a 2060 end date on his country’s contribution to global warming. President-elect Joe Biden has also pledged to rejoin the Paris Agreement after being sworn in on January 20, 2021. 9 A China+1 sourcing strategy typically refers to supply chain management strategy where firms opt to diversify risks by establishing a factory in China, and another in a developing economy in Southeast Asia, such as Thailand or Vietnam. 10 Indonesia recently passed the Omnibus Law, while India passed the Production Linked Incentive. 


A widespread health crisis such as a global pandemic could cause substantial market volatility, exchange trading suspensions and closures, and affect portfolio performance. For example, the novel coronavirus disease (COVID-19) has resulted in significant disruptions to global business activity. The impact of a health crisis and other epidemics and pandemics that may arise in the future, could affect the global economy in ways that cannot necessarily be foreseen at the present time. A health crisis may exacerbate other pre-existing political, social and economic risks. Any such impact could adversely affect the portfolio’s performance, resulting in losses to your investment.


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Ronald CC Chan, CFA

Ronald CC Chan, CFA, 

Senior Portfolio Manager, Chief Investment Officer, Asia ex-Japan Equity

Manulife Investment Management

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