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Is it time to favor North Asia over the US?

Is it time to favor North Asia over the US?

14-04-2020 | Quarterly outlook
We thought we had seen it all, or almost all, and then the ball comes out of left field. In the last quarterly, in the section ‘What could go wrong’, we had mentioned geopolitical risk, but a pandemic was nowhere near the top of our list. The global economic shutdown that was triggered by the coronavirus outbreak is unlike anything we have ever experienced in our lifetime.
  • Wim-Hein  Pals
    Wim-Hein
    Pals
    Head of Emerging Markets team
  • Fabiana Fedeli
    Fabiana
    Fedeli
    Global Head of Fundamental Equities
  • Michiel  Plakman
    Michiel
    Plakman
    Portfolio Manager Robeco Global Stars Equities

Speed read

  • Outlooks for DM and EM downgraded to negative and neutral
  • US outperforms in recessions but North Asia fundamentals are recovering sooner
  • Stay selective from both a country and an individual stock perspective

The restrictions on people’s movements, the so-called ‘lockdowns’, now affect more than half of the world’s population. The economic disruption from these measures will be enormous, with the flow of people and goods severely curtailed, and a global recession is all but inevitable. However, countries that have been able to resume activity earlier than others should fare relatively better.

This situation explains the changes made by our investment teams to their five-factor frameworks. Both Developed Markets and Emerging Markets teams saw a downgrade to their outlook. However, the largest deterioration was, by far, in developed markets, for which the overall outlook is now negative.

So, does this mean that emerging markets as a region will outperform developed markets for the foreseeable future? That is what the relative stance of our investment teams implies. Yet, as we move into a global recession, the traditional outcome for equity markets is an underperformance of equities versus other assets classes and, within equities, an outperformance of the US stock market relative to other regions.

We therefore need to be more nuanced, and not simply look at EM as an homogeneous group versus DM. One point that our Emerging Markets team has made in this outlook is that country allocation will be an important discriminating parameter. Favoring North Asia to the US doesn’t mean that all emerging markets will recover either quickly or soon. ‘Stay selective’ will be the name of the game, also from an individual stock viewpoint.

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