Stock markets in places at the forefront of containing the coronavirus are outperforming this year. But investors are starting to look beyond their success in suppressing the pandemic going forward.
Shares in New Zealand, Japan, Taiwan, South Korea and Finland –- the top five spots in Bloomberg’sCovid Resilience Ranking — have climbed 15% on average, compared with just 2% for the bottom five– Mexico, Argentina, Peru, Belgium and the Czech Republic.
Top-ranked New Zealand, which managed to eradicate local transmissions with a swift and early lockdown, has seen its benchmark rise 12%, while shares in bottom-ranked Mexico, where the government downplayed the virus threat, have flatlined.
“Countries which have better controlled the impact of the pandemic have tended to deliver healthier stock market returns and experienced lower declines in GDP,” said Federated Hermes Inc. portfolio manager Lewis Grant, in emailed comments. “It is becoming increasingly apparent that there is no trade-off between health and the economy.”
As the global vaccine rollout begins, investors are trying to gauge where to find value when stocks have already rallied to record highs, and optimism about a return to normal has sparked a rotation from growth to cyclical stocks.
Analyzing whether a company or country is in a stronger or weaker position in a post-Covid world is a better way of assessing investment opportunities than just looking at how well it has handled the Covid-19 crisis, said Rob Almeida, global investment strategist at MFS Investment Management.
“My view is that the top countries in the Resilience Ranking have more growth and secular stock exposure when compared to those at the bottom of the ranking, which are likely more value and cyclical in nature,” he said.
Despite the recent rush to cheaper shares, an MSCI gauge of global growth stocks is still sitting on a 74% gain from the March lows versus a 54% gain for its value counterpart.
Of course there is one obvious outlier. The U.S. stock market has delivered outsized returns despite soaring infections there and the Trump administration’s heavily-criticizedresponse to the pandemic. U.S. equities have been underpinned by a super-accommodative Federal Reserve and a rally in technology behemoths that have benefited from a shift to work from home.
Stocks in Japan, Taiwan and South Korea have also done well thanks to technology names that have proven to be “Covid-winners” benefiting from increased global demand, according to Grant at Federated Hermes.
Looking forward, Gene Podkaminer, head of research at Franklin Templeton Investment Solutions, favors a combination of economic growth potential and coronavirus success. That includes Asia Pacific stocks from the likes of China, Korea, Japan and Australia, he said.
“Within equities we focus on growth equities and generally assets with exposure to goods-driven demand,” said Podkaminer. “Regions which are suffering the most from Covid, such as Europe, the U.S., and Canada, may continue to struggle.”
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