Outlook Asia | Q2 2021
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So, the backup that we've seen in yields in the US, I think really speaks to that more optimistic outlook for the US economy and the global economy in general. And I think that spells good news for Asia.
But from a currency perspective, we clearly saw over the course of 2020, currencies across the region strengthened relative to the US dollar. But as we look forward to the next couple of quarters, I would expect that to be more muted.
Well, when we think about the prospect for tightening in China, I think we have to look at that in the context that actually we didn't see that substantial loosening of policy as we went through 2020. Nothing like the scale of fiscal and monetary stimulus that we saw elsewhere in the world.
So I would expect, when I look at economic strategy for China, to maybe continue to support areas like R&D, high-end manufacturing and the opening out of the financial markets, more so than we would expect to see a lot of spending on fixed asset investment.
I think that there's a very strong case that what we have started to see in markets, which is this shift away from the very highly-valued growth sectors towards a broadening out of market returns, is likely to persist as we go through the year, not just in Asia, but also in markets globally.
I think it would be reasonable for investors to have more modest expectations from headline market returns, especially in equity markets over the coming quarter, given that we've seen a very strong performance over recent quarters. And even if we have that positive outlook on the global economy and the outlook for Asia as a region, I think some part of that has already been discounted in prices in the short term.
I expect to see the bond markets continue to remain under some pressure as inflationary pressures build in the real economy.
And as a result of both of those things, I feel that investors will be well-served by really considering valuation as a core part of their investment strategy.
So there are a couple of areas that I would point to in Asia more broadly outside of China.
The first is that actually we're very positive on the prospects for Japan. Now, Japan, the story is probably less driven by the macroeconomic picture, but more driven by the level of corporate reform that we're seeing throughout the Japanese companies. So that determination to improve underlying returns, as well as that being married with relatively low valuations, not just within the region, but also globally.
The other area where we believe investors should focus is around Southeast Asia, where I believe that the region will benefit not just from improving global growth and the ambition of economies like the US to diversify supply chains, but also from that greater growth within Asia and the greater integration within the region.