jpm_asset_mgmt
  • Products

    Funds

    • Performance & Yields
    • Liquidity
    • Ultra-Short
    • Short Duration

    Solutions

    • Cash Segmentation
    • Separately Managed Accounts
    • Managed Reserves Strategy
  • Insights

    Liquidity Insights

    • Liquidity Insights Overview
    • Audio Commentaries
    • Case Studies
    • Leveraging the Power of Cash Segmentation
    • Cash Investment Policy Statement
    • China Money Market Resource Centre
    • PeerView Survey

    Market Insights

    • Market Insights Overview
    • Eye on the Market
    • Guide to the Markets
    • Market Updates

    Portfolio Insights

    • Portfolio Insights Overview
    • Currency
    • Fixed Income
    • Long-Term Capital Market Assumptions
    • Sustainable Investing
  • Resources
    • MORGAN MONEY
    • Account Management & Trading
    • Multimedia
    • Announcements
  • About us
  • Contact us
Skip to main content
  • English
  • Role
  • Country
  • MORGAN MONEY LOGIN
Search
Menu
CLOSE
Search
You are about to leave the site Close
J.P. Morgan Asset Management’s website and/or mobile terms, privacy and security policies don't apply to the site or app you're about to visit. Please review its terms, privacy and security policies to see how they apply to you. J.P. Morgan Asset Management isn’t responsible for (and doesn't provide) any products, services or content at this third-party site or app, except for products and services that explicitly carry the J.P. Morgan Asset Management name.
CONTINUE Go Back
  1. Home
  2. Insights
  3. Market Insights Overview
  4. Investment Outlook
  5. Asia’s decade

  • Share
  • LinkedIn Twitter Facebook
  • Email
  • Download
  • Print
  • Actions
  • LinkedIn Twitter Facebook
    Email Download Print



Asia’s decade

   

For investors, the last decade was dominated by US market performance. The period brought 10 years of standout returns from US assets and an appreciating US dollar. In our view, the next decade may be the Asian markets’ time to shine.

Crises often lead to secular shifts in market performance. The end of the dotcom boom in 2000 marked the end of US growth outperformance, and was followed by a period of strong performance for value, emerging markets and European equities. After the global financial crisis, the pendulum swung back in favour of the US.

Our expectation that we may see a similar shift this time is based on our macro outlook and structural changes that are taking place as Asia’s capital markets mature. The north Asian economies (China, Korea, Taiwan), which represent the bulk of the investable universe in Asia, have been more successful in containing the pandemic than the rest of the world. New daily Covid-19 cases per million people, even at peak infection rates were just a fraction of those in other regions. Due to the limited outbreaks and the ability to keep track of infections, these economies appear to have put Covid-19 behind them. While Europe and the US still face significant restrictions to contain the spread of the virus, China is already back to pre-crisis levels of activity (Exhibit 1).

Exhibit 1: China’s bounceback has been extraordinary
Real GDP levels
Index level, rebased to 100 at 1Q 2006

Source: BEA, Bloomberg, Eurostat, National Bureau of Statistics of China, ONS, J.P. Morgan Asset Management. Forecasts are from Bloomberg contributor composite. Data as 17 November 2020.

Despite the fast-growing consumer base, the Asian economies and markets are still highly dependent on the dynamics in global manufacturing and trade. But what has been a disadvantage for the region in the recent years of trade conflict has been a relative strength recently as the global consumer diverted its spending from services to goods.
 

The yield opportunity

Due to the success in controlling the outbreak, the fiscal and monetary response to the Covid-19 crisis was significantly smaller in Asia than in Europe and the US. As a consequence, central bank balance sheets are less bloated and bond yields fell less than US Treasuries.

Structural changes in the region’s bond market are further increasing its appeal for global bond investors. In the past, restricted access and limited currency convertibility prevented Asian bond markets from playing a major role for global investors. But with the rising financing needs of the region, this is changing rapidly. Following the opening of the USD 15 trillion local renminbi bond market to overseas buyers, yield-starved international bond investors now have the opportunity to invest in Chinese government bonds with yields north of 3%. As well as offering higher yields, local renminbi bonds have a relatively low correlation to developed market bonds and zero return beta to global equities, potentially boosting portfolio diversification and enhancing risk-adjusted returns.

In the past 12 years, monthly return correlations between renminbi bonds and global developed market bonds have been 0.1. With China’s early success in containing the Covid-19 pandemic knocking its economic cycle out of sync with the rest of the world, we would expect correlations to remain low for the time being. The fact that the renminbi remains to some degree managed by the authorities, reducing currency volatility, also increases the appeal.
 

The growth opportunity

North Asian equity markets outperformed many of the developed world indices in 2020, in large part thanks to their economic outperformance and relatively high weighting of tech and online companies. We expect this outperformance to continue for two reasons. In the near term, the outperformance reflects the fact that developed world activity will remain constrained until the vaccines are widely distributed and life can return to normal.

In the longer term, structural growth prospects in Asia are underpinned by urbanisation and the growth of the middle class. These trends are set to continue in the next decade in three of the most populous countries in the world – China, India, and Indonesia – creating large domestic and consumer-led markets. The new free trade agreement (Regional Comprehensive Economic Partnership) covers 10 ASEAN countries and China, Japan, Korea, Australia and New Zealand. These 15 nations represent almost a third of global GDP. This should further support the long-term growth outlook. The agreement is expected to eliminate 90% of tariffs between the trading partners if all components of the product are manufactured inside the free trade area. This rule of origin provision could deepen the supply chains inside the region since it incentivises the signatories to build the full supply chain inside the new free trade zone.

As a result, Asian companies will be provided with plenty of opportunities to grow in the coming years. China’s push to move further up the value chain, presented in the latest five-year plan, should facilitate its transition to a high-income economy and help it to weather the negative impact of deteriorating demographics. Asian equities had a strong run in 2020; nevertheless, our 2021 Long-Term Capital Market Assumptions suggest Asian equities still have the potential to outperform developed markets by 2.2% a year over the next 10 to 15 years (Exhibit 2). Mounting signs that the 10-year-old US dollar bull market is fading further reinforce our view that the next 10 years might go down as the Asian decade.

Exhibit 2: Asian stocks look favourable on our long-term projections
2021 Long-Term Capital Market Assumptions expected returns in coming 10-15 years
%, annualised returns in GBP

Source: 2021 Long-Term Capital Market Assumptions, J.P. Morgan Multi-Asset Solutions, J.P. Morgan Asset Management. Returns are nominal and in GBP. Past returns are calculated from the start of 2009 up to the end of October 2020, or the most recent available data. The projections in the chart above are based on J.P. Morgan Asset Management’s proprietary long-term capital market assumptions (10-15 years) for returns of major asset classes. The resulting projections include only the benchmark return associated with the portfolio and do not include alpha from the underlying product strategies within each asset class. The assumptions are presented for illustrative purposes only. Data as of 31 October 2020

more key themes for 2021

  • The debt deluge means lower interest rates for even longer
  • The Covid winners/losers narrative could change
  • Global momentum towards tackling climate change
  • Rethinking the 60:40 portfolio
  • Central projections and risks
DOWNLOAD THE FULL OUTLOOK

Past performance and forecasts are not reliable indicators of current and future results.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not a reliable indicator of current and future results.
 

J.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our EMEA Privacy Policy www.jpmorgan.com/emea-privacy-policy.
 

This communication is issued in the UK by JPMorgan Asset Management (UK) Limited, which is authorised and regulated by the Financial Conduct Authority. Registered in England No. 01161446. Registered address: 25 Bank Street, Canary Wharf, London E14 5JP.

J.P. Morgan Asset Management

  • Investment stewardship
  • About us
  • Contact us
  • Privacy policy
  • Cookie policy
  • Binding corporate rules
  • Sitemap
Decorative
J.P. Morgan

  • J.P. Morgan
  • JPMorgan Chase
  • Chase

READ IMPORTANT LEGAL INFORMATION. CLICK HERE >

The value of investments may go down as well as up and investors may not get back the full amount invested.

Copyright 2021 JPMorgan Chase & Co. All rights reserved.