【Morningstar】Asia Equity Market Outlook: Third-Quarter 2020

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Further gains contingent on COVID-19 and economic recovery.

Global equity markets surged ahead in the second quarter, anticipating the reopening of business around the world. The Morningstar Asia Markets Index posted a 19% increase over the last quarter to June 28. With some companies posting strong recovery in their share prices to near pre-pandemic level, price/fair value in our Asia coverage increased to 0.92 times from 0.80 times last quarter. We maintain our view the long-term economic effect of the coronavirus outbreak is minimal, but short-term pain will persist for the rest of 2020. Ongoing fiscal relief and loose monetary policies are supportive for equity markets in the medium term. However, capital markets are expected to remain volatile, contingent on the risk of further COVID-19 outbreaks and the pace of economic recovery. Balance sheet strength, strong liquidity position, and acquiring stocks at an attractive margin of safety are key considerations.

Key Takeaways

× The Interactive Media, Consumer Cyclicals, and Technology sectors were expected to be the beneficiaries in any initial recovery, and their share prices outperformed accordingly.

× Selective opportunities remain in the above sectors, particularly in travel-related Macau Gaming and Trip.com, on concerns of a more gradual recovery in international travel.

× Defensive sectors in Utilities and Consumer Defensives underperformed while Financials and Real Estate also lagged in performance. We expect Financials and Real Estate to benefit in a latter part of a recovery.