US equities have rallied vigorously following the virus-induced sell-off in March, prompting many to return to the markets to make a profit and recoup losses.
The S&P 500 erased its 2020 losses and the Nasdaq Composite hit a new high on Monday, even as officials declared that the US entered a recession in February.
That could suggest the region's return as an investment hot spot. But as the dollar continues to fall amid stimulus from central banks, investors can be cautious and look to other markets for wealth-building opportunities.
Opportunities in Asia
UBS Global Wealth Management has said that Asia (excluding Japan) is the "only region" that it expects to produce positive growth in equity earnings this year.
The call reinforces positivity among wealthy Asian investors, who in April said they were very optimistic (51%) about the six-month outlook for stocks in their region, compared with 46% in Europe and only 35% in The US major Asia-Pacific markets rose as much as 49% from their lows in March last week.
This represents an investment opportunity in the region, particularly for Asian investors who would otherwise be hit by currency losses when investing in US dollar-denominated stocks, according to Freddy Lim, StashAway's co-founder and chief investment officer.
"There is a good chance that Asian currencies will outperform the dollar in the next 18-24 months," said Lim of the Singapore-based digital wealth manager. "This also means that Asian-based assets could start to look interesting in local currency terms."
Main markets to invest
Looking at the major markets in Asia, the Singapore Straits Index looks attractive as it offers access to "high-quality, stable names with a long history of browsing past epidemics," Lim said.
Other industrialized Asian markets, such as South Korea, Hong Kong, Taiwan, as well as China, also appear to be relatively "winners" compared to their less developed regional counterparts, according to HSBC Singapore's head of wealth and international Ian Yim.
"In addition to being attractive in value, they have less exposure to raw materials and oil, and have proven to be better equipped to deal with the Covid-19 crisis," Yim said, highlighting the various factors at play in the market. .
More specifically, industries with strong fundamentals that have been accelerated by the virus, such as e-commerce, the Internet and China's new economy, are likely to do well, Yim and Lim agreed.
"Companies that enable e-commerce have proven to have robust business models and can potentially reap the benefits of changing consumer behavior in the future," Yim said.
Bonds and real estate
Outside of the stock market, other investments in Asia show promise, said Samuel Rhee, president and chief investment officer of Singapore-based digital advisory firm Endowus.
Asian fixed income bonds, in particular, have performed well under governments' fiscal response to the virus, and provide very important investment diversification, he said.
"On bonds, regionally, we see value in Asia, where yields have risen," agreed HSBC's Yim.
On the other hand, real estate, or real estate investment funds (REITs), could present some "vulnerabilities", given the impact of the virus on the sector, Rhee said.
Invest in the sector
Before taking advantage of any investment opportunity, it is important to come up with a strategy. Describing your financial goals and how much you can invest is a good starting point.
StashAway's Lim recommended consistently investing a lump sum each month. According to the StashAway Vision 2020, "systematic investors", who continually invest during a downturn, perform better than those who withdraw during a correction.
Now there are many digital wealth managers available to help you do that; Automatically invest in passively managed index funds or exchange-traded funds (ETFs) that track specific regions or sectors. This not only eliminates the hassle of monitoring the markets too closely, but it also allows you to stay invested for the long term, Endowus's Rhee said.
"Time to market is more important than trying to time the market," Rhee said. "That has proven to be a futile effort as the recent rapid decline and equally rapid rebound have proved again."
Why invest in Asia?
Asia is a compelling and dynamic investment universe that can offer investors attractive portfolio diversification. Economic fundamentals underpin cash-generating stocks across the region and can offer attractive investment opportunities in the medium and long term.
The Asia-Pacific region can offer great growth potential as well as attractive revenue streams. There are several key factors to consider when exploring the region:
It is home to roughly two-thirds of the world's population1 and, despite population aging trends in some parts of the region, large working-age populations support growing economies.
Wealth is growing rapidly. The size of the investing middle class has increased steadily, and there are now more high-net-worth individuals in the region than in any other.
GDP growth in many of the region's economies outpaces that of most Western countries, and there is a strong global and thriving business base throughout the Asia-Pacific region. According to recent research, Asian economies will be larger than the rest of the world as a whole in 20202.
Many of the region's publicly traded companies now have a well-established culture of paying dividends. You can find a range of companies that offer dividend yields significantly higher than the 10-year local government bond yields.
Unlike many Asian equity funds, Jupiter Asian Income's strategy is predominantly focused on developed countries in the Asia-Pacific region. This bias toward developed markets has increased over time, as a number of economic and political risks in emerging market nations have convinced the team of the relative merits of the region's developed markets.
The Asia Revenue Strategy is led by Jason Pidcock, who joined Jupiter in 2015 and has more than 25 years of experience investing in the Asia Pacific region. She is supported by Product Specialist Jenna Zegleman.
Asia is arguably the biggest engine of economic growth in the world today, and many are trying to invest in its rise through the stock market. Of course, Asia is a very large and diverse continent with great investment opportunities, but there are several guidelines to follow. You will have to evaluate the opportunities in each country individually, or buy equity funds that invest heavily in Asian companies. You should be aware that information on foreign companies may not be available, reliable or timely. Stock markets in Asia are less regulated than in the United States and have a "buyer beware" element.
Choose a country to make an initial investment. Singapore stocks have different outlooks than Japanese stocks, for example. Do extensive research on local laws and companies that are based in a particular country. Taking the time to choose the right company to invest in, as well as exposure to adverse currency events, is absolutely critical.
For example, Asia Stock Watch provides general coverage of Asian markets, Equity Master provides information on the Indian market, China Daily is the English government newspaper, and Gaijin Investor and Japan Financials are geared towards foreign investors buying in Japan.
Decide whether you want to use a brokerage company in your own country or in another. Opening accounts abroad can involve a lot of paperwork and documentation, but it will give you many more options than you would otherwise have when using a typical brokerage account in the United States. Options include being able to invest in companies that you would not otherwise have access to from the United States. However, brokerage firms are not as regulated as in the United States, and neither is securities trading compared to the United States.
Going directly to the source is beneficial for several reasons. The vast majority of shares in Asia can only be purchased through the stock exchange in their respective countries. In addition to the added options and the possibility of new discoveries, investing in foreign platforms reduces monetary, political and financial risk by having bank and brokerage accounts in the appropriate countries.
Choose countries that are moving from an agricultural to an urban society. Cities will have to be built, an educated workforce and better infrastructure, such as telecommunications, will be needed. Risk can be reduced by investing in countries that are not politically volatile.
In addition to a stable and financially secure government, look for countries that welcome foreign investment, have profitable central banks, and have internal stability without many protests and internal revolutions underway.
Other factors to consider for a profitable investment include finding countries that are improving economically, that are doing better than most people realize, that have a convertible currency to theirs, and that have easy ways to sell. if your investment doesn't work.
Invest in several different countries. This will help balance the volatility of trading in emerging markets and risk in countries where insider trading is allowed. After opening and funding your accounts, analyze the differences between them to inform your decisions about future investments.
In Japan, for example, stocks are typically bought in units of 1000, or occasionally 100, so even the smallest purchase can sometimes cost a lot of money. Look for brokers who trade in smaller multiples. There are also limits as to the extent to which prices are allowed to rise or fall in one day before trading is suspended.
In China, investors have found it difficult to trust the financial statements of many companies. It is wise to invest in first-line companies that have a long history, secure financial operations, and a large shareholder base.
Although India is known for its poor infrastructure, inflation, land reforms, centralized politics, poverty, corruption, and fiscal deficits, many Indian companies are producing very favorable returns, making investing in Indian stocks worthwhile. attractive to the savvy risk-taking investor.
Buy shares of Asian companies in your own country. If you are a small investor or are not comfortable opening a brokerage account abroad, some large-cap Asian stocks are listed on the New York Stock Exchange, NASDAQ, London Stock Exchange, and other platforms. Do a thorough research on each company using the publications listed in Method 1 before investing, looking for companies with a history of growth, a low amount of debt, and the size and stability of available cash.
Other factors to consider are a strong balance sheet, a variety of product lines, management experience, and the number of employees. The risks of investing in Asian countries include social and political instability, fluctuations in exchange rates, volatility in equity prices, and limited regulation.
Buy mutual funds and Exchange Traded Funds (ETFs) that invest in Asian companies. Investment companies like Matthews Asia Funds and Aberdeen Asset Management, for example, invest in Asian companies and offer a variety of funds for both large and small investors. ETFs are investments that are established as a mutual fund but are traded as a single share.
Buying mutual funds often allows you to invest in countries whose markets are closed to individual investors who are not citizens. You may incur high fund expenses in professionally managed mutual funds.
Buy bond funds that are invested in Asian companies. A balanced portfolio contains both stocks and bonds. You can buy stocks in mutual funds that invest in foreign bonds or buy individual bonds. Aberdeen, Matthews Asia, and major US investment companies such as Vanguard and Fidelity sell bond funds that invest in Asian companies.
Investment funds
In recent weeks, fears about the coronavirus have shaken stock markets around the world. Initial hopes for quick containment were dashed as the virus continues to spread, particularly in China, which has the highest number of cases. Chinese manufacturers have been enduring factory closures since late January, which has affected their geographic neighbors in Asia as well as global supply chains.
Even before the coronavirus outbreak, growth in China had slowed due to the current trade war between the United States and China. Since China is the dominant country in its region, its slowdown has affected other Asian economies such as India, Malaysia, Thailand and Japan. Does that mean it is too late to invest in Asia?
When equity markets tumble, opposing investors tend to "buy the dip" - and buy stocks while everyone else sells them. But others say the current crisis is unprecedented and that stocks may continue to slide for fear of a global recession. While it is impossible to know what the near future might bring to the stock markets, the long-term outlook is worth considering.
Long-term investors tend to have a time horizon of at least five to ten years. And having a wide range of investments spread across the globe - rather than just focusing on stocks in your own country, for example - is the key to investing success.
So what are the pros and cons of investing in the Asian equity markets? It is worth bearing in mind that Asia is a very diverse region, home to around 60% of the world's population today. By comparison, Europe has less than 10% of the world's population.
One of the main benefits of investing in Asian economies is what professional investors call their "growth story." Not only are Asian populations large, but their middle classes and wealth levels are increasing. This means that they have ever-growing consumer bases.