Asia’s export growth momentum has waned, but the magnitude of the contraction was narrower than expected. Despite the severity of the economic recession and social distancing restrictions globally, the drop in export growth has not matched the 2009 experience. 2020 is shaping up to be similar to 2015/2016, when Asian exports took a breather but regained momentum shortly afterward.
Surging exports of work-from-home-related tech products, new tech growth areas and medical-related goods were the key positive factors. This has supported China’s exports to continue surprising on the upside. China was the only Asian country posting positive growth in June, as seen in the following chart, led by exports to the U.S., Europe and Japan. In ASEAN, exports nosedived from March due to strict lockdowns disrupting industrial production and trade. Meanwhile, India’s exports and production sharply plunged in April as the outbreak only started to disrupt activities then. As the Indian economy reopens, its economic indicators have begun to improve to varying degrees.
Further post-lockdown recovery, as witnessed by the recent bottoming of global Purchasing Managers’ Indices (PMIs), will likely continue to support some modest trade recovery within Asia. This includes both tech and non-tech sectors, where the latter have been on a rather sluggish trend lately.
Exhibit 1: Emerging Asia exports: disrupted but picking up steam
Stronger export growth will have positive implications for Asian earnings outlooks, given the close relationship between Asia’s export trend and corporate earnings performance. Admittedly, there is the non-negligible risk that the Asian export sector may be negatively affected by the renewed U.S.-China trade tensions. This would lower not only China’s exports to the U.S. but also other Asian economies’ exports given the integrated supply chain. Investors are advised to take a more active approach in sector, company and country selection. ASEAN, with significant exposure to domestic demand and as the biggest beneficiary from the supply chain shift out of China, should continue to offer a better alternative within the emerging market Asia universe if trade frictions re-escalate.