Multiple lockdowns as a result of the zero COVID policy in China have disrupted the equity market in both mainland China and Hong Kong. As a result, these two economies are the worst-performing stock markets in Asia on a year-to-date basis after Sri Lanka which is suffering from its greatest financial crisis since its independence.
Over the years, Chinese companies have been a favourite of global brokerages among investment options in the emerging South East Asia region. But as a result of this current development, several strategists have started reducing their overweight position on China, in favour of ASEAN companies — such as Indonesia, Singapore, and Malaysia where there is a noticeable surge in commodity prices. All of this is in contrast to the past when a cut in China’s weighing usually meant to have an increase in allocation towards India.
According to the experts, with the Covid disruptions in China along with the inflationary pressures in India, this may further take away the sheen from the two traditional blazing spots.
It is quite evident that Indonesia is emerging as a bright spot in Asia as well as an emerging market pack. The Morgan Stanley Capital International Indonesia has reassembled itself by around 9% in dollar terms this year. Whereas FPIs (Foreign portfolio investments) have pumped over $3 billion into their equity market.
In comparison to this, the Indian market is down over 4% in the dollar terms with FPSs pulling out $17 billion. Within the ASEAN basket, Indonesia and Singapore have the largest country allocation toward India.
Further, the hawkish stance by the US and European Union in wake of the Russia-Ukraine war will mean that there will be a lesser flow of dollars and euros in the developing economies.