26 December 2020 /
Global Market Outlook, Our thinking
Asia ex‑Japan: constructive for equities
Schermata 2021-01-11 alle 15.58.52
Anh Lu

Portfolio Manager, Asia ex‑Japan Equity Strategy

High‑quality growth businesses on reasonable multiples

Key insights

  • Asia in general managed the pandemic well in 2020. North Asian economies normalized fairly quickly. Others, like India, are lagging but show signs of improvement.

  • Despite strong year‑to‑date performance, Asian markets offer an attractive risk/reward profile relative to their global counterparts from a valuation perspective.

  • While there are pockets of expensive stocks such as biotech, internet platforms, and electric vehicles, many high‑quality growth businesses trade on reasonable multiples.

Our views remain constructive on the medium- to longer-term outlook for Asia ex‑Japan equities. Even as global growth may be slower to recover than earlier hoped for, we think domestic demand in the Asian region should hold up relatively well. In their responses to the coronavirus pandemic, governments have had to achieve a balance between adding the right level of stimulus and not adding too much or withdrawing too early. Although all countries saw deterioration in fiscal balances as they had to add some stimulus during 2020, the level of deterioration in Asia in general is more measured compared with some other parts of the world. In addition, due to falling imports and lower commodity prices, most Asia ex‑Japan governments have been able to keep their current account balances healthy. This should bode well for Asian FX from here, while periods of US dollar weakness historically have been good for regional equity returns.

We are seeing signs of China starting to withdraw some liquidity, but we feel Beijing can continue to calibrate policy stimulus as needed in 2021. China’s policymakers are not out of ammunition, and there is room for them to do more should this become necessary. We maintain a cautious outlook on the frayed relations between the US and China. This is expected to remain one of the key risks to Asia ex‑Japan markets in 2021. US/China relations will likely remain tense even under a Biden administration. Perhaps the areas of contention may shift, but we think US national security concerns over technology are unlikely to go away.

We think the growth of intra‑regional trade will continue to rise over time. The recent Regional Comprehensive Economic Partnership (RCEP) trade agreement between the Association of Southeast Asian Nations (ASEAN) and five other Asia Pacific countries should  further boost this in the medium to long term. While it is too early to quantify the potential impact of this deal on our investments, the direction is positive as we expect that the rise of intra‑regional trade will definitely increase efficiency and enhance economic growth.

Turning to companies, in general, Asian companies entered the pandemic in good shape from a balance sheet perspective. We can see that free cash flow for the region held up well despite the hit to earnings in 2020. We are seeing more investment opportunities in Asia with companies that are benefiting from increasing domestic demand due to import substitution. Consumption has generally held up well thanks to low household debt levels.

“We remain constructive on the medium to longer-term outlook for Asia ex‑Japan equities…”

China to continue to lead Asian economic recovery in 2021

China’s economy has largely returned to normal—the only major economy to have done so. Domestic consumption and services are likely to drive growth next year, and the recent rebound in retail sales is encouraging. Potential positive growth spillovers in 2021 are likely to be increasingly felt by China’s Asian neighbors. Growth prospects among the emerging market economies still appear to be narrowly focused on China and northeast Asia.

The monetary and fiscal measures deployed by various governments in Asia to stem the impact of the outbreak should continue to be supportive in 2021. Even in the countries that have been affected the worst the number of cases is not obviously declining, but mortality rate for COVID‑19 (the disease caused by the coronavirus) has been low, which is partly attributable to the relatively young populations in India, Indonesia, and the Philippines. More importantly, people are starting to go back to normal life in places like India and ASEAN as governments loosen lockdowns and the extreme fear factor of the virus subsides with the prospect of vaccines becoming widely available in 2021.

Sticking with our bottom‑up investment style

We believe that Asia ex‑Japan equity markets continue to offer opportunities to investors looking for reasonably valued, high‑quality growth companies that can successfully navigate this temporary period of uncertainty due to the coronavirus to eventually emerge stronger than before.

Across the region, we expect that the coronavirus outbreak may hasten consolidation in a number of industries, and we are focusing on companies that potentially stand to benefit from this acceleration. Domestic consumption remains an overarching theme in our portfolio. We believe that Asian households are generally under-levered and consumption is a secular opportunity.

We also favor potential beneficiaries of import substitution (especially in China) as domestic companies come up with ways to replace imports with local products, especially amid heightened geopolitical tensions. We find that the trade issue is prompting Chinese companies to source more products locally. Given the vulnerability of some parts of the global supply chain to external disruption revealed by the coronavirus, this trend is likely to continue.

Some of these domestic‑focused Chinese companies today could emerge as global players over time. In China, we look for companies that should benefit from the increasing demand for premium products, while across countries there may be opportunities in businesses that could benefit from consolidation in fragmented industries. When we think about our bottom‑up stock picks, we also look at the extent of a company’s innovation, not merely in the use of technology, but also in other ways as it seeks to improve market positioning.

“…in general, Asian companies entered the pandemic in good shape…”

Investment opportunities in 2021

Stock markets generally have done well this year, but Asia ex‑Japan is still relatively better value versus other markets, in our view. There are pockets of very expensive stocks in Asia, such as biotech, some software names, some Chinese tech companies, and new energy vehicle theme stocks. But we believe there are also many high‑quality growth businesses still trading at reasonable multiples relative to their own history and relative to a lower cost of capital. This is the area where we naturally own the most stocks.

“The Asia ex‑Japan region continues to be very dynamic…”

We also find good value in some of the cyclical stocks that were hit hard by COVID‑19 but which we think will emerge just as strong or even stronger after the pandemic. These tend to be companies that have suffered a short but sharp cyclical downturn thanks to the coronavirus. This is where we have been adding in recent months as we get closer to better testing capabilities, treatment, and, of course, a vaccine.

The Asia ex‑Japan region continues to be very dynamic, constantly offering us new opportunities to invest in. Our process favors companies that should come out of the crisis stronger. These tend to be companies that are leaders in their sectors and should be able to gain market share and consolidate their industries. We favor companies that are likely to benefit from a strong capital structure and are likely to weather a potentially prolonged downturn in business activity. While we recognize that the current environment presents a challenge to earnings forecasts, we expect to see healthier earnings growth reestablished in 2021 and beyond. It will remain key for governments to strike the right balance between adding stimulus without overstimulating or withdrawing too early. In terms of other risks in the region, we are of the view that US/China relations are unlikely to go back to the pre‑Trump era—despite some return to traditional diplomacy—with persisting tensions around technology.

ID0003831 (12/2020)


Sign up for Global Equity insights from T. Rowe Price
Share this article:
Share on linkedin
Share on email

Important Information

The specific securities identified and described are for informational purposes only and do not represent recommendations.

This material is being furnished for general informational and/or marketing purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, nor is it intended to serve as the primary basis for an investment decision. Prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested. 

The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction. 

Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources’ accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date written and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price. 

The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request. It is not intended for distribution to retail investors in any jurisdiction.

UK—This material is issued and approved by T. Rowe Price International Ltd, 60 Queen Victoria Street, London, EC4N 4TZ which is authorised and regulated by the UK Financial Conduct Authority. For Professional Clients only. 

© 2021 T. Rowe Price. All rights reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, and the bighorn sheep design are, collectively and/or apart, trademarks of T. Rowe Price Group, Inc.

Our thinking

Weekly market recap

Read Time: 11 mins Yoram …

Our thinking

The cycle – where are we? Implications for global equity investors

Read Time: 5 mins David …


Capital Market Insights: Japan: A fresh look at the land of the rising sun

Read Time: < 1 mins This …

Our global equity capabilities

Explore our range of funds available to 

you and your clients

Thank you for registering for global equities updates. The latest insights will be sent straight to your inbox, in the meantime see our latest thinking:

Important Legal Information

This site is intended for financial intermediaries in the United Kingdom. I have read the terms detailed below and confirm that I am a financial intermediary and that I wish to proceed. By accessing this website, you consent to T. Rowe Price collecting information by way of cookies.

Information contained in the T. Rowe Price website is not intended for investors in any jurisdiction in which distribution or purchase is not authorised, including the jurisdiction of the reader of this information, where applicable. For example, the information herein is not for distribution to and does not constitute an offer to sell or the solicitation of any offer to buy any securities in the United States of America to or for the benefit of United States persons.

Information obtained from this site is intended specifically for the individuals who have agreed to these Terms and Conditions and may not be redistributed without prior consent from the T. Rowe Price Legal department.

The information is designed for professional investors, including financial intermediaries or members of the media, and is published for informational purposes only. In particular, the information is directed at only informing persons falling within one or more of the following categories:

(a) A government;
(b) A bank or insurance company;
(c) A pension fund or charity;
(d) Persons whose ordinary activities involve them, as principal or as agent, in acquiring, holding, managing or disposing of investments for the purposes of a business carried on by them or whom it is reasonable to expect will, acquire, manage or dispose of investments for the purpose of such a business;
(e) Persons whose ordinary business involves the giving of advice, which may lead to another person acquiring or disposing of an investment or refraining from so doing;
(f) Representatives of the media for corporate and background information about T. Rowe Price.

Persons who do not fall into one of the above categories should not act upon the information contained herein.

Certain persons may have access to information regarding the T. Rowe Price Funds SICAV, an investment company incorporated as “Société d’Investissement à Capital Variable” (‘SICAV’) under the laws of Luxembourg and the T. Rowe Price Funds OEIC, an open-ended investment company (‘OEIC’) incorporated in England and Wales. The sub-funds referred to on the site are only offered by the current prospectus. The prospectus contains more complete information about the sub-funds, including investment objectives, charges and expenses. However, the prospectus and other information relating to the sub-funds will not be intentionally distributed to persons in any country where such distribution would be contrary to local law or regulation.

Past performance is not a guide to future performance. The value of securities and any income generated from them might decrease as well as increase. Changes in rates of exchange may also have an adverse effect on the value, price or income of securities. Investors should also be aware of the additional risks associated with investments in emerging markets, high yield securities and smaller companies.

This information herein does not constitute investment advice and the products described may not be available to or suitable for all investors. You should consider, if appropriate, obtaining independent professional advice before making an investment decision.

Unless otherwise noted, the content appearing in this Section of the T. Rowe Price website has been issued by T. Rowe Price International Ltd, 60 Queen Victoria Street, London EC4N 4TZ, which is authorised and regulated by the U.K. Financial Conduct Authority with the reference number 194667.