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Eye on Asia | Despite the coronavirus pandemic, prospects for Asia-Pacific stocks look bright beyond the short term
- While there is more pain to come for the region due to the impact of Covid-19 on supply chains, fiscal and monetary policies as well as largely solid fundamentals should support Asian markets
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From its earliest days as a virus outbreak in China, Covid-19 has morphed into a worldwide health crisis likely to tip the global economy into a severe slump in the first half of this year.
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Shocks to the US and euro zone – which could hasten recessions in some major economies – will delay recovery in the Asia-Pacific. China’s central bank has preferred timely liquidity management over a major rate cut, while targeted measures, such as tax breaks, have supported sectors under the most strain. Policy may ramp up further as global demand falls.
Separately, Singapore has set aside US$4.5 billion to help companies and households, while Indonesia, Malaysia and Taiwan have unveiled stimulus packages as well.
Although the manufacturing shock emanating from China doesn’t seem to have surfaced fully across Asia-Pacific yet – with falls in purchasing managers index output still modest – we don’t think this will last.
Sub-indices suggest supply chains are under greater pressure than output balances might suggest, while headwinds from the US and euro zone are likely to put global supply chains under further strain.
A larger shock to the global economy implies policy will need to step in more forcefully. We project that the US Federal Reserve will cut its interest rate by a further 50 basis points by April, with central banks in advanced economies generally following this lead.
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