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Macroscope | For Asian stock markets, expect the rest of 2021 to be brighter
- Although Asia has underperformed the US and Europe since the first quarter of this year, current valuations are supportive of Asia’s stock markets
- On the whole, Asia continues to be well placed to deal with the virus, maintain strong economic growth and have lower inflation than the US
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Although a number of Asian countries, such as Vietnam and South Korea, have recently seen higher inflation rates, inflation remains low across the Asia-Pacific region. This means central banks can keep interest rates low for the foreseeable future, which in turn will support economic recovery and should be good news for equity investors.
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Although Asia and the Pacific has underperformed the United States and Europe since the first quarter of this year, current valuations and the outlook are both supportive of the region’s stock markets.
Looking ahead to 2022, the US market is expected to run into some headwinds coming from monetary tightening as the US Federal Reserve begins to taper its bond buying and prepares for an interest rate hike.
So far, markets don’t expect rates to go up until 2023 but if US inflation rates remain elevated, there may be no choice but for hikes to be brought forward.
Higher inflation rates in the United States and other Western economies are largely a result of the supply distortions that have emerged since the post-lockdown economic recovery got under way in the third quarter of 2020.
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