Asian Economies Outperforming the Western World
This year brought the deeper economic contraction the Western world had seen in a very long time. Contraction is that phase of the business cycle when economic activity contracts.
However, the business cycle, with its ups and downs, only shows deviations from the long-term economic growth. Some expansion phases last longer than other ones. When expansion keeps going, economists refer to such periods as booms. On the contrary, prolonged contractions turned into recessions. Moreover, severe contractions are often named depressions.
The length of the economic contraction, but also the severity of it matters. How fast can an economy bounce back? The faster, the better for the population, society, and the easier for people to move on to the next phase in the business cycle.
The best way to explain the Asian economies outperforming the Western ones is to think of an example. A company looking for hiring someone in a top position is asking for previous experience. The more, the better. Also, the more relevant, the better chances the candidate has.
That is exactly what happened with Asian economies. They have been there before. Sure, there was no pandemic until this year, but viruses that spread locally did exist. As such, protocols were in place already. Infrastructure did not need to be built from scratch – just to be used. People were used to such outbreaks. Plus, discipline and calm did help during a health crisis generated by an airborne virus.
All these, while obvious in hindsight, made Asian economies more resilient to the pandemic. In fact, South Korea, China, Vietnam, Singapore, Taiwan, Thailand, and so on – suffered the smallest possible economic impact in 2020. Out of the listed countries, the Chinese economy will even post positive growth.
For the other countries, the economic recovery continues. As the USD liquidity improved, the Asian corporate default rate decreased significantly. As such, Asia investment-grade offers an attractive premium for fixed-income investors over E.U. and U.S. The U.S.-China trade tensions are likely to de-escalate in the aftermath of the U.S. elections, another reason for investors to turn their attention to Asia.
To sum up, globalization may take a step back due to the pandemic. However, for the investing community, the global market remains open. Cyclical sectors in Asia recently outperformed – and will likely continue to do so way before their European and American peers do.