Lately, the world has seen good progress on the vaccine front. Vaccinating the most vulnerable first could help ease pressure in the healthcare sector and make governments more comfortable with relaxing mobility restrictions, thus, enabling the resumption of economic activities.

Despite a more positive outlook, keeping a focus on companies with strong fundamentals remains key, alongside revisiting laggards of 2020 in portfolios.

Vaccine rollouts and Asia

Asian governments and corporates have generally demonstrated their ability to mitigate downside risks of the health crisis with decisive moves and flexible approaches.

Some economies in North Asia, for example, have been able to keep infections in check through effective testing, contact tracing and strict border controls. And these economies could afford to be more cautious in their vaccine rollouts.

In other parts of Asia, economies such as Singapore, Indonesia and India have kickstarted their vaccination programmes. Speedier vaccinations could help put economic recovery on a stronger footing.

A recovery from North Asia to ASEAN

Already, the health crisis has accelerated some structural trends in Asia, including further adoption of technology, lifestyle and consumption upgrades. Read more: Recovering Asia: seeking long-term sector opportunities

Although China, technology and healthcare are getting relatively more attention from an equity allocation perspective, the laggards of 2020, such as ASEAN could benefit from earnings upgrade when the recovery becomes more comprehensive.

Asia Pacific – ex Japan equities: earnings expectations by market and sector²

2. Source: MSCI, J.P. Morgan Asset Management. (Top) IBES. Equity indices used are the respective MSCI indices. Consensus estimates used are calendar year estimates from IBES. (Bottom) FactSet. Sector indices used are from the MSCI AC Asia Pacific ex-Japan Index. Consensus estimates used are calendar year estimates from FactSet. Indices do not include fees or operating expenses and are not available for actual investment. Past performance is not a reliable indicator of current and future results. Data reflect most recently available as of 31.12.2020. Forecasts and estimates are indicative of macro trends, may or may not come to pass. Not to be construed as research or investment advice.

ASEAN is poised for recovery, off a low base², in 2021 as vaccine prospects boost optimism for tourism-related sectors, such as hotels and airports. Already, ASEAN in November 2020 agreed to take steps towards establishing a travel corridor arrangement framework to facilitate essential business travels among its member states³. This could have knock-on effects on consumer and business confidence, leading to continuing normalisation in economic activities and improving corporate earnings.

Tourist arrival 4-year compound annual growth rate (CAGR)⁴ (%)

4. Source: UBS. Data as of end-December 2018. Forecasts and estimates are indicative of macro trends, may or may not come to pass. Not to be construed as research or investment advice.

Even before the health crisis, ASEAN and Asia Pacific are among the fastest growing regions in the world for tourism⁴. Domestic travel in China has recovered quickly where hotel-occupancy rates and numbers of domestic flight passengers have bounced back to around 90% of 2019 levels by end-August 2020⁵.

And although global passenger traffic is unlikely to return to pre-health crisis levels until 2024, the recovery in short haul travel is still expected to happen faster than for long-haul travel⁶. This could benefit travel and tourism within Asia.

Consumption upgrade

In addition to a rebound in tourism activity, consumption is also expected to become a key driver of economic growth in Asia.

The health crisis is changing the eating habits of some Asian consumers as eating-at-home becomes commonplace, boosting demand for takeaways and deliveries.

In Thailand, for example, there has also been a shift in the shopping behaviour of Thai consumers when it comes to fast-moving-consumer-goods, with households preferring to make their purchases in a smaller shop more frequently, favouring convenience stores. Alongside food, beverages and household items, such stores also provide services such as bill payment facilities, car insurance and mobile top-ups⁷.

Additionally, most Asian economies are modernising their food safety systems to ensure the availability of safe and nutritious food for the population. Asia’s consumers are asking more of their food supply chains, seeking highly-nutritious, fresh and safe produce delivered conveniently and on demand. They will also pay a premium to businesses able to deliver on this. Such a demand could bode well for some quality fast food restaurant chains.

Agricultural and food investment in Asia for 2020-2030 is estimated to increase by about US$800 billion, of which US$550 billion is expected to be spent on satisfying demand for better-quality food while the remaining US$250 billion is targeted for increasing the quantity of food to feed Asia’s growing population⁸.

Conclusion
 

Vaccine development is becoming a game-changer and could provide further growth momentum to Asian consumer and corporate activities. This development could provide a boost to laggards of 2020, such as ASEAN as they come under some investors’ radar¹.

Provided for information only based on market conditions as of date of publication, not to be construed as investment recommendation or advice.

1. For illustrative purposes only based on current market conditions, subject to change from time to time. Not all investments are suitable for all investors. Exact allocation of portfolio depends on each individual’s circumstance and market conditions.
3. Source: “ASEAN Comprehensive Recovery Framework and its Implementation Plan”, ASEAN Secretariat, 12.11.2020.
5. Source: “What can other countries learn from China’s travel recovery path?”, McKinsey & Company, 15.10.2020.
6. Source: “Recovery delay as international travel remains locked down”, International Air Transport Association, 28.07.2020.
7. Source: “Convenience stores in Thailand”, Euromonitor International, March 2020.
8. Source: “The Asia Food Challenge: Harvesting the Future”, Rabobank, PwC, Temasek International, November 2019.

Investment involves risk. Not all investments are suitable for all investors. Past performance is not a reliable indicator of current or future results. Please refer to the offering document(s) for details, including the risk factors. Investors should consult professional advice before investing. Investments are not similar to or comparable with fixed deposits. The opinions and views expressed here are as of the date of this publication, which are subject to change and are not to be taken as or construed as investment advice. Estimates, assumptions and projections are provided for information only and may or may not come to pass. This document has not been reviewed by the SFC. Issued by JPMorgan Funds (Asia) Limited.