What to know about investing in Asian markets

By Cameron Micallef

June 04 2020
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Optimistic investors are looking to cash in on countries that have fared better during the COVID-19 pandemic. Here’s how Asian markets are shaping up.

The Australian market opened higher today, with the S&P 200 growing by 1.3 per cent, moving beyond 6,000 points.

Yesterday’s trading saw Japan’s benchmark Nikkei 225, grew by 1.29 per cent, while South Korea’s Kospi +2.86 per cent.

Hong Kong’s Hang Seng was up 1.2 per cent, while the Shanghai Composite added 0.5 per cent.

According to JP Morgan’s global market strategist, Kerry Craig, the Asian markets have a number of tailwinds.

“First, there is the general reopening of the economy from COVID-19 and the fact that economic activity is improving from a very low level,” Mr Craig said.

“Second, the oil price has stabilised as fears around oversupply have eased.

“Third and importantly, the sheer scale of stimulus measures such as the ECB adding more to its QE program is bolstering risk sentiment. The general view seems to be that markets are looking past the near-term weakness in earnings and into 2021,” Mr Craig explained.

Mr Craig noted that countries which have recently experienced lockdowns could benefit from greater consumer spending.

“Also, there is some release of pent-up demand after the lockdown. With the earnings and the economic outlook in focus, the market is not focused as much on political risks or unrest in the US,” Mr Craig continued.

While highlighting that the economic data remains weak, with Australia facing its first recession in 29 years, he cautioned investors about short-term volatility.

“If the economic data remains weak for the moment, markets are likely to continue to discount that as being backward-looking.”

“However, a risk is that markets are pricing in a lot of good news that might not materialise in the second half of the year.”

Finally, Mr Craig cautioned investors that in the long run equities might do well, but it is important to invest in companies that can survive in the short term.

“In the very long run, equities are going to do well as they are coming from a lower base.”

“However, that will come with volatility. Currently, we are neutral towards equities in portfolios relative to other assets, and we prefer the US equity market for its slightly more defensive bias.”

“Stock picking has become more important as investors sift through companies, looking for those who can best survive and thrive through the pandemic, leading to greater focus on cash flows and balance sheets and those companies able to maintain pricing power and greater market share,” Mr Craig concluded.

About the author

Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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