2021-07-25-未知机构-Asia_s_Ongoing_Pandemic_Battle-Investment_Implications_30页_1mb

Asia EM Equity Strategy Summary

Core Content

This document outlines the investment implications of Asia's ongoing battle with the pandemic, focusing on economic and market dynamics. It highlights the impact of containment strategies, vaccination progress, and the potential for a recovery in both FX and equities. The report also presents a list of 32 stock ideas that offer attractive risk/reward profiles given the current market sentiment and expected normalization.

Main Views

1. Economic Outlook

• Containment Measures: Asia continues to rely on strict containment strategies, which have constrained domestic consumption growth but supported overall economic growth through strong exports and capital expenditure (capex).
• Vaccination Progress: By the end of 4Q21, 10 out of 12 economies (representing 97% of the region's GDP) are expected to reach or exceed 70% full vaccination of the adult population, which could lead to a broadening out of the recovery.
• GDP Recovery: North Asian economies and Singapore are closer to their pre-pandemic GDP paths compared to the Philippines, Indonesia, and Thailand.
• Virus Evolution: As the virus evolves, so must the pandemic management approach. Policy makers are starting to shift from strict containment to a more nuanced strategy that differentiates between vaccinated and unvaccinated individuals.

2. FX Strategy

• Bearish Outlook: The report remains bearish on Asia FX due to the continued reliance on containment measures, the resurgence of the pandemic in emerging markets (EM), and the divergence in monetary policy between the PBOC and the Fed.
• Recommended Positions:
  • Long USD versus INR and IDR basket
  • Long SGD and PHP versus KRW and MYR basket
  • Long CNH/TWD as a carry trade
  • USD/THB 6m straddle is recommended
• Monetary Policy Divergence: Asian central banks are expected to lag behind in rate hikes, which will weigh on FX performance.

3. Equity Strategy

• Cautious Stance: The report is cautious on Asia ex Japan and EM equities, citing concerns over the pandemic and other macroeconomic factors.
• Preferred Markets: Australia, Singapore, and India are preferred due to their more flexible approaches and better recovery prospects.
• Restriction Impact: There is a statistically significant negative impact on market performance when restrictions increase relative to pre-Covid baselines. Domestically facing companies are particularly affected during periods of outbreak.
• Stock Ideas: 32 stocks are highlighted as offering attractive risk/reward profiles, with some being undervalued relative to market expectations and others benefiting from improved vaccine efficacy and a potential shift in pandemic management.

Key Information

Vaccination Rates and Pandemic Impact

• Vaccine Efficacy: Current vaccines are effective against the Delta variant, with at least 88% efficacy against symptomatic infection and 96% against hospitalisation in the UK.
• Case and Hospitalisation Trends: The UK has seen a rise in cases but a significant drop in hospitalisations, indicating the effectiveness of vaccination efforts.
• Vaccination Progress: By the end of 4Q21, 10 out of 12 economies are projected to reach or exceed 70% full vaccination, with most aiming for 90-100%.
• Challenges: Vaccine hesitancy and delivery issues in rural areas may hinder reaching high vaccination rates.

Investment Scenarios for 2H21

• Base Case: Avoiding further lockdowns, with a full-fledged recovery expected from 4Q21 as vaccination rates rise.
• Downside Risk: Delays in vaccination could lead to prolonged containment measures, pushing full reopening into 2022.
• Upside Risk: Surprises in vaccine delivery could result in early full reopening, boosting consumer confidence and consumption.

Market Performance and Restrictions

• Stringency Index: The Oxford Stringency Index is used to measure the impact of restrictions on equity market performance.
• Correlation: There is a strong inverse relationship between lockdown stringency and the performance of equity markets, especially for domestically facing companies.
• Custom Returns Series: Equity market returns are weighted by domestic revenue to better reflect the impact of local restrictions.

Strategic Recommendations

• Equities: Focus on quality stocks in Australia, Singapore, and India.
• FX: Maintain a bearish stance with long positions in USD, SGD, and PHP against weaker currencies like INR, IDR, KRW, and MYR.
• Carry Trade: Recommend long CNH/TWD and USD/THB 6m straddle as carry trade opportunities.

Analysts and Disclosures

• Analysts: Jonathan F Garner, Chetan Ahya, Daniel K Blake, Deyi Tan, Derrick Y Kam, Jonathan Cheung, Min Dai, Jingzhong Zhang, Belle Chang.
• Disclosures: Morgan Stanley may have conflicts of interest due to its business with companies covered in its research. Investors should consider this report as one factor in their decision-making.