Asian countries to dominate emerging markets even amid COVID-19 volatility

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Asian countries are expected to continue outperforming world markets even amid COVID-19 volatility.

Specialist fund manager Ashmore PLC (LON:ASHM) has hailed a recovery seen over the past six months with emerging markets growing strongly as pandemic concerns eased, central banks pumped in money and developing countries got a boost from the US election result.

READ: Ashmore profits jump as emerging markets bounce back from coronavirus

China remains the winner, as it is expected to be alone in seeing GDP growth in 2020, underpinned by a diversified domestic economy driven by innovation and digitalisation, according to Templeton Emerging Markets Investment Trust plc (LON:TEM).

Independent white-label ETF platform HANetf echoed this sentiment, stating that China is the biggest economic emerging market “whether you like it or not”.

It is a fast-growing country, with a huge population and advanced technology supported by an ambitious political strategy.

It is home to huge names such as Alibaba and Tencent, which are known everywhere in the world, and more locally-focused firms such as shopping platform Meituan and ‘the Netflix of China’ iQiyi.

Therefore, China will remain a market leader even if the trade war with the US persists, Andre Voinea, Head of German-speaking regions at HANetf, told Proactive.

Meanwhile, the trade war has actually been an underlying growth driver for other Asian countries, such as Vietnam, which attracted the attention of manufacturers and investors.

Moreover, the weakness of the dollar has helped local currencies across the continent.

Craig Martin, chairman at Dynam Capital, investment manager of Vietnam Holding (LON:VNH), told Proactive that Vietnam is at the cusp of a generational continued increase in consumerisation.

“[Vietnam] has been enjoying that benefit from export but also from the domestic economy has been relatively resilient during the last 12 months, in addition to a relatively low-interest rate environment,” Martin told Proactive.

“The domestic people are happy, because the economy’s doing well, consumer confidence is high. Also, in low-interest rates there’s liquidity and wanting to invest perhaps in the stock market, the Vietnam stock market actually came off in March of last year, in a very quick V-shaped recovery.”

Like some of its neighbours, Vietnam has maintained a lively domestic activity over the past year thanks to its ability to keep infections under control, without the need to implement restrictions as severely as in Europe or in the US.

The vaccine rollout remains a source of risk, although the challenges could be managed even if in case of supply disruption because of the low number of COVID-19 cases.

In fact, richer countries have been warned against hoarding the available doses by various bodies, such as the World Health Organisation and the OECD, leaving the poorer areas behind.

Among those hardest hit by the pandemic, HANetf reckons India is poised for growth as it increases its digital capabilities, with hundreds of people getting their first internet connection by the minute, e-commerce firms and cheap mobile manufacturers thriving in a relatively young market.

“The speed in terms of first access to the internet can, at some point in the future, lead to interesting growth opportunities,” commented Voinea.

“We cannot predict exactly when it will happen, will it be this year, will it be next year, but the potential in India is certainly very interesting once they cope with this pandemic.”

Elsewhere in the world

The pandemic has accelerated some of the trends favouring Asian countries, such as low-interest rates and digitalisation, also in Latin America.

The region’s mining industry got a boost by higher metal prices driven by a strong global rebound in the manufacturing supply chain, after years of underinvestment and weak currencies.  

Brazil has continued to focus on economic reforms that are leading to a structural downward shift in its historically high real interest rate, which could see things looking up for the financial sector this year.

According to Templeton, South Africa has chances to get out of stagnation as President Cyril Ramaphosa looks to reform public spending and address corruption.

“The challenges of 2020 have highlighted structural advantages and other beneficial secular trends in emerging markets that bode well for 2021,” the investment trust said.

“This broadening of economic recovery creates a compelling investment opportunity for all types of investors across emerging markets as a whole.”

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