Asia at the Forefront: The World’s Uneven Emergence from COVID-19

There is significant variation in how countries have handled the pandemic, managed fiscal and monetary policy, and supported their economies, according to Templeton Global Macro. While the euro area and the US contend with deepening fiscal deficits and excessive monetary accommodation, areas of Asia are in stronger fiscal shape, with greater growth potential, robust trade dynamics and current account surpluses.

Key takeaways from the team:

  • Two significant events in the waning months of 2020 have significantly re-shaped the investment opportunities in 2020. The first is the development and distribution of highly effective vaccines against COVID-19, which is a massive game-changer on both the health and economic fronts. The second is a return to more orthodox diplomacy in the United States, which lowers the risks for a geopolitical shock.
  • Asia is at the forefront of the global economic recovery, in our assessment, as many countries in the region benefit from better fiscal management, favorable trade dynamics, current account surpluses and stronger growth potential. Asia also broadly benefits from being within China’s currency orbit and its regional economic sphere, given China’s massive growth potential. We expect fundamental factors to support currency valuations across much of Asia in the upcoming year.
  • Most Asian countries have also handled the pandemic better than much of the world, not only putting the region in a stronger position to recover, but also providing protection against potential setbacks should the pandemic relapse. Many countries in the region have higher interest rates than much of the developed world and significantly lower debt levels, creating attractive investment opportunities.
  • We expect the rise of China to have a significant impact on the global economy, as China increasingly pursues outward expansion of its global influence. The “One Belt, One Road” initiative is a major factor in the country’s global ascendance, as are several factors that are driving the Chinese yuan toward reserve currency status. International use of the yuan has accelerated, aided by efforts to digitalize the currency, exponentially increasing access to it. Regional trade and asset ownership is increasingly denominated in the yuan.