Last year, AsianInvestor made 10 predictions about how markets would swing in the Year of the Ox, ranging from inflation surprises to cryptocurrencies. As we enter the Year of the Tiger, we examine how accurate our predictions were.
Which Asia Pacific countries have the most to gain, and which the most to lose, from the Biden presidency?
Answer: Most to gain – emerging markets (ex-China)
Most to lose – China
Verdict: Somewhat incorrect
The prediction that emerging markets would gain in 2021 was arguably wrong, and even though Chinese stocks dipped by the end of the year, domestic policies probably had more to do with it than Biden.
Emerging markets had negative returns of -2.54% for 2021, according to the MSCI Emerging Markets index, compared with the 21.82% returns of MSCI World, which measures developed market performance.
As for China, the benchmark CSI 300 index posted a 5.2% loss, closing the year at 4940.37, while the MSCI China index recorded -21.64% returns. But how much of this can be attributed to Biden?
The Chinese equities market faced regulatory pressures throughout the year, from a clampdown on tech firms, to a credit squeeze on the property sector.
While geopolitics has had an effect on capital markets – Michael Power, a strategist at NinetyOne said that what began under Donald Trump as a trade war between the US and China will develop further into a “capital war” under Joe Biden – a big reason behind the market slump was China’s own policies.
In a crackdown on tech firms, the Chinese government ordered the removal of ride-hailing firm Didi’s app from app stores after its NYSE listing, and Chinese state media branded online gaming platforms as opium.
Didi eventually announced plans to delist just five months after its IPO and is aiming for a Hong Kong listing later this year instead.
In the property sector, the effects of Beijing’s ‘three red lines’ introduced in December 2020 to curb developers’ borrowings hit investors when Evergrande teetered on the edge of default for most of the year before Fitch Ratings finally rated it as “restricted default” in December. More Chinese developers are expected to follow as hopes of a government bailout fade.
Looking forward into 2022, Beijing’s push for “common prosperity” is expected to have a significant impact on the assets that will perform (Think less luxury and big tech, and more green energy stocks).
And even though regulatory uncertainty continues to cast a pall on Chinese stocks, analysts are not expecting major turnarounds in policies this year and are spying some valuation drops as ‘buy’ opportunities.
Perhaps the biggest direct impact Biden has made was the expansion of a ban by Trump on investments into 59 Chinese tech and defence firms.
But institutional investors, particularly asset owners, remain optimistic on China, while keeping an eye on regulatory and ESG risks. Only 14% have reduced holdings there, and 64% plan to increase further.
At the start of the Biden administration, analysts were hopeful that emerging markets stood to gain. But there has been little proof of that happening, as developed countries continue to battle the coronavirus and vaccine inequality.