(Bloomberg) – The threat of the omicron variant is becoming real for many of Asia’s biggest countries, just as it looks set to ease in some Western countries, making it harder for investors to find winning bets on actions in the region.
Bloomberg’s Most Read
The problem is that Asian governments have widely divergent coronavirus policies, with strategies ranging from China’s pursuit of Covid Zero to Australia’s decision to live with the virus, and pretty much everything in between. The timeliness of vaccinations and the strength of health systems also vary widely across the region.
It’s another example of how Covid is forcing investors to face new challenges, although many remain positive about Asia’s ability to weather the storm as its top performing countries have kept deaths down. due to the pandemic at much lower levels than elsewhere. Asian stocks have outperformed their European and US counterparts so far this year, having underperformed both in 2021.
“Asia will be better prepared to deal with the omicron waves, which may prove to be more fleeting,” said Wai Ho Leong, strategist at Modular Asset Management. “Markets that are better vaccinated and have timely social distancing curbs are also likely to recover from this wave faster.”
That, he says, points to Singapore, South Korea, Taiwan, China and Malaysia as potential winners, with India, Thailand and the Philippines just starting to see increases. Consumer discretionary, autos and banks are among the sectors to bet on, he said.
Western countries, from Switzerland to Spain and the UK, have suggested the coronavirus pandemic may be moving into an endemic phase. In Asia, the wave of omicron variants is beginning to surge, with cases rising in Australia, a jump in infections in Tokyo prompting authorities to lift the Covid alert and Hong Kong extending social restrictions.
“Tale of a Rich Country”
Exhausted from lockdowns, European countries have largely avoided a return to onerous restrictions. Many countries in Asia “refuse to accept the Western rich-country narrative that it is softer and will have a lower net impact,” wrote Jeffrey Halley, senior market analyst for Asia-Pacific at Oanda, in a January 10 report.
The two largest markets in the region are part of it. For some, China’s proven success in eradicating the virus when it is discovered means investors there need not worry about omicron’s share.
“While isolated shutdowns may temporarily disrupt a certain location, they are likely to have little impact on the economy as a whole,” said Jian Shi Cortesi, chief investment officer for growth stocks in China and China. Asia at GAM Investments in Zurich. “The Chinese economy has adapted to zero Covid measures, with most sectors operating normally. For most people, it’s life as usual.
But others wonder how long this strategy can be maintained. Morgan Stanley slashed estimates for Hong Kong’s economy as the city shifts back to tight restrictions, likely delaying a reopening with the mainland. Confinements in China remain local but could become widespread.
“The odds of a growth shock in China from omicron and Covid Zero are steadily increasing day by day,” Oanda’s Halley wrote.
Hong Kong faces the worst of both worlds as Omicron ruins Covid Zero
Japan was among the first countries to attempt a ‘living with the virus’ strategy in 2020, but under the administration of Prime Minister Fumio Kishida, Covid policy has become more cautious despite 80% of the country having had two vaccines.
“Japan is now the strictest country in the free world” in terms of border control, said Richard Kaye, portfolio manager at Comgest Asset Management Japan Ltd., which oversees about $10 billion in Japanese stocks. Conversely, he says the rigor makes it the ideal reopening game.
“We can invest in the reopening story with much greater and greater visibility than we have in other major economies,” he said. Kaye sees airlines, airport operators, railroads and retail likely to benefit from the opening of strict borders.
So far this year, Japan’s blue-chip Nikkei 225 index has underperformed the Asian benchmark by about three percentage points.
Bloomberg Businessweek’s Most Read
©2022 Bloomberg LP