亞太地區(qū)投資策略-亞洲正在進(jìn)行的流行病之戰(zhàn)之投資影響-2021.7.25

InvestmentConclusions

Economics:Givencurrentlowvaccinationrates,policymakersinAsiaarecontinuingtorelyonstrictcontainmentstrategiestocontroltheeffectsofthepandemiconpublichealthsystems.PolicymakershaverecentlytightenedrestrictionsinanumberofeconomiesacrosstheregionduetoconcernsovertheDeltavariant.Thesestrict/targetedlockdownmeasureshaveconstrainedtherecoveryinconsumption,thoughtheregion'sstrongexportsperformanceanditspositivespillovereffectsonthecapexcyclehavesupportedoverallgrowthoutcomes.Asof1Q21,GDPintheNorthAsianeconomiesareclosertorespectivepre-Covidpaths,GDPinthePhilippines,IndonesiaandThailandarethefarthestaway.InourBaseCase,weseerestrictionsremaininginplaceforatleastthenext2-3months,whichwillconstraindomesticconsumptiongrowth.However,byend-4Q21,weestimate10outof12economieswecover(accountingfor97%oftheregion'sGDP)willhavereachedorexceededthe70%markforfullvaccinationwhichshouldallowforaneasingofrestrictions,andabroadeningoutoftherecovery.

FXStrategy:WemadeadecisivechangetoourAsiaportfolioaftertheJuneFOMC,givenourassessmentthatahawkishFedwouldcauseEMFXtoweaken.Weclosedallourbullish/carrytradesandaddedafewbearishtrades.TheresurgenceofCOVID-19inEMmeansEMeconomiesarelikelytounderperformversusDMintheshortterm,draggingdownEMFX.Inaddition,thePBOC-FedmonetarypolicydivergenceislikelytofurtherweighonAsiaFXasmostoftheAsiancentralbanksarelikelytobelaggingbehindintermsofhikingrates.Lastly,oilpricesshouldstayhigh,causingoilimporterstounderperform.Overall,westaybearishonAsiaFX.WearelongUSDversusINRandIDRbasketandlongSGDandPHPversusKRWandMYRbasket.WerecommendlongCNH/TWDasacarrytradeandlikeaUSD/THB6mstraddle.

EquityStrategy:WeremaincautiousonAsiaexJapan(andEM)equitiesandrecentlycutourJune2022targetprices.OurpreferredmarketsareAustralia,SingaporeandIndia.TheongoingbattlewithCovid,particularlyasmorevirulentvariantshavetakenhold,isoneofseveraladversefactorswhichledustoacounter-consensusviewaslongagoasearlyFebruarythatthehighforthereflation/re-ratingphaseofmarketdynamicswasalreadyinplace.Wefindthatwhererestrictionsonactivityversuspre-Covidbaselinesareincreasingrelativetopeers,onecandocumentaweaklystatisticallysignificantnegativeimpactonstockmarketrelativeperformanceandviceversa.Indeed,zoominginfurthertoequitymarketperformancewefindastronginverserelationshipbetweenperiodsofoutbreakatthecountrylevel–definedasasignificantincreasein7dmaofcases–andtheperformanceofthedomesticallyfacingcompanieswithinthatmarket.DrawingonaframeworkusedpreviouslyforDM,wehighlight32stocksthatareseenbyMSanalystsandstrategistsaspresentingattractiverisk/rewardamidexpectationsforeventualnormalisation.Thesegenerallyfallintothecategoryofcompaniesthathavelowersalesexpectationsthanpre-Covidandhavederatedrelativetothemarket,butwhereouranalystsarelesspessimisticthanconsensusonthelongertermoutlook,orforcompaniesthathavehighertop-lineexpectationsfor2021thanpre-Covidbuthavederatedrelativetothemarket.

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Economics:VaccinationsandTheirImpactonAsia'sGrowthOutlook

ChetanAhya,DerrickKam,JonathanCheung

Covidcontainmentmeasuresarestillbeingimposed,constrainingconsumptiongrowthintheregion.Strengthinexportsandcapexhavehelpedtosupporttherecoveryandoverallgrowthoutcomesareinlinewithourforecasts.Lookingahead,weestimatethat10outof12economies(accountingfor97%oftheregion'sGDP)wouldbeabletoachieveclosetofullvaccinationofitsadultpopulationby4Q21,whichshouldallowforbroaderliftingofcontainmentmeasures,andconsumptiongrowthwillrecoverinafull-fledgedmanner,broadeningtherecovery.

AsiacontinuestorelyoncontainmentmeasuresinmanagingCovid-19

CovidcontainmentstrategiesarestillbeingdeployedinAsia–withvaryingdegreesofstringencyacrosseconomies.Ingeneral,thecontainmentstrategyinAsiatendstobebuiltontwopillars:

Strictquarantinerulesfortravelers:Internationalleisuretravelremainslargelyclosed,restrictedtoreturningcitizensorforessentialreasons.Moreover,uponentry,travellersaresubjecttostrictquarantinerules,oftenhavingtostayinstandalonehotels/facilitiesforaperiodof7-21daysandundergoregularCovid-19testing.

Strict/targetedlockdownmeasures:Mosteconomiesintheregionhavegonethroughsuccessivewavesoflockdowns–rangingfromastrictnationwidelockdowntorestrictingmovementacrossstates/provincestosoftermeasureslikerestrictingselectedhigh-touchactivities.

Alltheeconomiesintheregionhavelockeddowntheirentireeconomyatapointintimeoverthepast18months.InNorthAsiaandSingapore,targetedrestrictionsareeasilytriggered,aspolicymakerstendtotakeactionquicklytonipclustersofinfectioninthebud.Meanwhile,IndiaandotherASEANeconomieshavehadtotakeupbroadlockdownmeasurestocontroltheinfections.

Butasthevirusevolves,somustAsia'sCovidmanagementapproach

GDPhasjustaboutreacheditspre-Covidpath:WhilethecontainmentstrategieshaveworkedincontrollingCovidandpublichealthoutcomes,theyhaveunfortunatelyconstrainedtheeconomicrecoveryintheregion.Fortheregionasawhole,GDPremainsjustatadbelowitspre-Covidpath(Exhibit1).WhileGDPintheNorthAsianeconomiesareclosertorespectivepre-Covidpaths,GDPinthePhilippines,IndonesiaandThailand(whoaccountforasmallershareintheregion'saggregateonaPPPbasis)arethefarthestaway.

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Consumption,whilerecovering,islagging:Thedivergenceineconomicperformanceisseenacrosseconomiesandalsowithinthesectorsinaneconomy.Fromademandperspective,theboominglobaltradehasalreadyliftedAsia'sexportsgrowth(ona2YCAGRbasis)tothehighgrowthrateslastachievedduring2017-1H18.Meanwhile,theupliftinexportsgrowthhasalsostartedtoprovideimpetustotheregion'scapexcycle(Exhibit4).Strongexternaldemandandcapexhavethereforehelpedtosupportoverallgrowthoutcomes.Privateconsumption,whilecomparativelyaccountingforasmallershareintheregion'sGDP,remainsthefarthestawayfromitspre-Covidpath(Exhibit2).ThesluggishrecoveryinconsumptionisinturntiedtoAsia'sCovidmanagementapproach.Themeasureshavebeenprogressivelylessrestrictiveovertime,andhouseholdshavelearnthowtomanagetheirconsumptionpatternsaroundthelockdownmeasures,hencethesemeasureshavehadanincrementallyweakerimpactonconsumption.Butthelockdownmeasures(whetherbeittargetedorbroad-basedlockdowns)havemeantthatabroad-based,fullyfledgedrecoveryhasnottakenoffyet(Exhibit3).

Exhibit1:Asia'sGDPisjustbelowitspre-Covidpath...

AsiaGDPLevel(4Q19=100)

113

ActualGDP

110

Pre-CovidGDPTrend

108

105

3Q21:Returntopre-

103

CovidGDPpath

100

98

95

Mar-19

Sep-19Mar-20Sep-20Mar-21Sep-21Mar-22Sep-22

Exhibit2:…largelyduetosluggishrecoveryinconsumptionsofar

AsiaFinalConsumption(4Q19=100)

106

ActualTrend

104

Pre-CovidGDPTrend

102

100

98

96

94

92

90Mar-19Jun-19Sep-19Dec-19Mar-20Jun-20Sep-20Dec-20Mar-21

Source:CEIC,HaverAnalytics,nationaldatasources,MorganStanleyResearch.Note:AsiaincludesChina,HongKong,India,Indonesia,Korea,AustraliaandJapan.TheAsiaaggregateisaweightedaverageusingPPPbasedGDPweights.Thepre-Covidpathreferstotheexpectedtrajectorybasedonaverage%Qgrowthratefor2019

Source:Source:CEIC,HaverAnalytics,nationaldatasources,MorganStanleyResearch.Note:TheAsiaaggregateisaweightedaverageusingPPPbasedGDPweights.Thepre-Covidpathreferstotheexpectedtrajectorybasedonaverage%Qgrowthratefor2019

Exhibit3:Exportshaveledtherecoveryaheadofretailsales...

9% AsiaexIndiaandPhilippines

RealRetailSales,2YCAGR3MMA

7%

RealExports,2YCAGR3MMA

5%

3%

1%

-1%

-3%

-5%

Jan-19 May-19 Sep-19 Jan-20 May-20 Sep-20 Jan-21 May-21

Source:CEIC,HaverAnalytics,nationaldatasources,MorganStanleyResearch.Note:RetailsalesaggregateisPPP-weightedaverage.

Exhibit4:…withspillovertocapexintheregion

25%

Asia

12%

20%

RealExports,2YCAGR3MMA

10%

15%

RealGFCF(2YCAGR,RHS)

8%

10%

6%

5%

4%

0%

2%

-5%

0%

-10%

-2%

May-07May-09

May-11May-13May-15May-17May-19May-21

Source:HaverAnalytics,nationalsources,MorganStanleyResearch;Note:Wearelookingatatwo-yearcompoundannualgrowthratetoaccountforthebaseeffectsin2020.GFCFaggregateisPPP-weightedaverage.

VaccinesholdthebesthopeagainstCovid-19anditsvariants:Atthemoment,theDeltavarianthascausedinvestorstobeconcernedabouttheglobalmacrooutlook(fordetails,pleaseseeSundayStart-TheGrowthScareAnniversary,July11).Currentstudiesshowthatvaccinesremainhighlyeffective,evenagainsttheDeltavariant.Accordingto

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studiesfromUKandIsrael,twodosesofthevaccinescurrentlyusedintheseeconomieshaveefficacyratesofatleast88%againsthospitalisations(Exhibit5).WhilethenumberofcasesintheUKhavealreadyreachedsimilarlevelsasthatinDec-20(Exhibit6),dailyhospitalisationsarejustaquarterofthelevelsseenthen(Exhibit7).ItwillbeimportanttotrackthistrendinhospitalisationsintheUKoverthenextfewdays.Moreover,intheUS,withtheDeltavariantnowrisingtobethedominantstrainaccountingformorethan80%ofallcases,itremainsthecasethatcasecountsaremainlyrisingamongsttheunvaccinatedpopulation.Aspermediareports,theCDChasindicatedthat97%ofhospitalisationsandalmostallofthefatalitiesareamongtheunvaccinatedpopulation.

Exhibit5:StudiesshowthatcurrentvaccinesretainefficacyagainsttheDeltavariant

Vaccineefficacyagainstdeltavariantaftertwodoses

EfficacyagainstStudyLocation

Astrazeneca

Pfizer/BioNTech

England

60%

88%

Symptomatic

Infection

N.A

41%

Israel

England

92%

96%

HospitalAdmission

Israel

N.A

88%

Source:PublicHealthEngland,IsraeliHealthMinistry,MorganStanleyResearch

Exhibit6:DailycasecountsintheUKhaverisenclosetoitspreviousDec-20peak…

1200 UKdailyconfirmedcasespermillion

Day0=11/24/2020

1000

Day0=5/23/2021

800

600

400

200

0

Day100

Day96

Day92

Day88

Day84

Day80

Day76

Day72

Day68

Day64

Day60

Day56

Day52

Day48

Day44

Day40

Day36

Day32

Day28

Day24

Day20

Day16

Day12

Day8

Day4

Day0

Note:Lastdatapointisasof22July2021.Source:Gov.uk,MorganStanleyResearch

Exhibit7:…butdailyhospitalisationsarejustaquarterofwhatitwas

UKdailyhospitalizationspermillion

70

Day0=11/24/2020

Day0=5/23/2021

40

30

20

10

0

Day100

Day96

Day92

Day88

Day84

Day80

Day76

Day72

Day68

Day64

Day60

Day56

Day52

Day48

Day44

Day40

Day36

Day32

Day28

Day24

Day20

Day16

Day12

Day8

Day4

Day0

Note:Lastdatapointisasof18July2021.Source:Gov.uk,MorganStanleyResearch

Fromcontainmenttovaccinations:Asia,atthemoment,isplayingcatch-uponitsvaccinationefforts.Whileimproving,vaccinationratesacrossmostoftheeconomiesintheregionarestilllowerthanthatoftheUS,EAandUK.Thisispartlyduetoalaterstart–mostAsiaeconomiesstartedtheirvaccinationprogramsinearnestfromaroundlate1Q21,about3-4monthslaterthanwhentheUS,EAandUKstartedtheirCovidvaccinationdrives.

VaccinationratesacrossAsiaisimproving:However,sinceJun-21,vaccinationrateshave

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improvedacrosstheregion(Exhibit8&Exhibit9).Thisisinturnduetoacombinationofimprovementinvaccinesupply.PolicymakershavealsomadearenewedpushforvaccinationsinlightofarenewedriseincasesacrosstheregionsinceMayandwiththeadventoftheDeltavariant,ithasincreasedtheimpetusforpolicymakerstopushforvaccinations.Vaccinehesitancy,whichprevailedduringtheearlystages,havealsoseeminglydeclined.

Exhibit8:Vaccinationshavepickedupacrosstheregion…

18000DailyVaccinationpermillionpeople(7-daysmoothed)

16000

China

Singapore

14000

Malaysia

Taiwan

HongKong

Japan

12000

SouthKorea

10000

8000

6000

4000

2000

0

Jan-21

Feb-21Mar-21

Apr-21

May-21

Jun-21

Jul-21

Source:CEIC,OurWorldinData,MorganStanleyResearch

Exhibit9:…Amidimprovingsuppliesandmobilizationfrompolicymakers

6000

DailyVaccinationpermillionpeople(7-daysmoothed)6000

5000

Thailand

Australia

Indonesia

4000

Philippines

India

4000

2000

3000

0

T1

2000

1000

0

Jan-21

Feb-21Mar-21

Apr-21

May-21

Jun-21

Jul-21

Source:CEIC,OurWorldinData,MorganStanleyResearch

OutlookonAsia'sCovidmanagementstrategy

Containmentmeasurestopersistinthenext2-3months:Thelowincidenceofcases,especiallyinNorthAsia,meansthatlargesegmentsofthepopulationdonothavenaturalimmunityfrompastinfections.Hence,policymakerswillneedtorelyontheuseofvaccinations.Inthiscontext,thetypicallyacceptedthresholdforachievingherdimmunityisforatleast70%oftheadultpopulationtobefullyvaccinated.Inaddition,policymakersintheregionremainfocusedoncontrollingCovidoutbreaksandhencearelikelytobemoreinclinedtokeeprelyingoncontainmentmeasuresuntilvaccinationratesreachtheirrespectivecomfortlevels,whichwenotecanvaryfromeconomytoeconomy.

Theoutlookforvaccinations:Byusingacombinationofannouncedvaccinesupply,currentpaceofvaccinationsandevaluatingitinthecontextofgovernmentannouncementsonvaccinationtargets,weprojectthatbyend-3Q21,thevaccinationrateswouldhavepickeduptobetween25-100%,withsixoutof12Asiaeconomiesmovingabovethe70%mark.Byend-4Q21,vaccinationratesacrossmosteconomieswouldhaverisento60%orabove,with10outof12economiesabovethe70%mark(accountingfor97%oftheregion'sGDP).Formoredetailsbyeconomy,pleaseseeExhibit10.

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Exhibit10:Asia'svaccinationprogressexpectedtopickupin2H21

%ofadultpopulationthatarefullyvaccinated

byend-3Q21

byend-2021

(basedontotal

(basedontotal

doses

doses

Current*

administered)

administered)

China

67%

90-100%

90-100%

Singapore

56%

90-100%

90-100%

HongKong

33%

73%

90-100%

Japan

27%

75%

90-100%

Malaysia

21%

90-100%

90-100%

Korea

15%

78%

90-100%

Australia

15%

61%

90-100%

India

9%

54%

90-100%

Indonesia

9%

38%

84%

Philippines

7%

25%

57%

Thailand

6%

33%

60%

Taiwan

1%

55%

90-100%

Source:OurWorldinData,CEIC,MorganStanleyResearchestimates.Note:Webaseourprojectionsforvaccinationrateonthefollowingfactorsdependingoninformationavailability:(1)announcedvaccinesuppliesanddeliveryschedules,(2)policymakers’guidanceonvaccinationtargets,and(3)currentvaccinationpace.Weacknowledgethattherearedifficultiesassociatedwithaccomplishingveryhigh(>90%)ratesofvaccinations,forinstancevaccinehesitancyaswellasdifficultieswithdeliveringvaccinestocertainsegmentsofthepopulation,likeinruralremoteareas.*CurrentdataforChinabasedontotaldosesadministered.DataasofJul20-21foralleconomies.

Exhibit11:WhenwillAsiaeconomiesachieveaclosetofullvaccinationoftheiradultpopulation?

China HongKong

Malaysia Japan Indonesia Philippines Thailand

3Q21 4Q21 1Q22 2Q22

Singapore Korea Australia

India

Taiwan

Note:Webaseourprojectionsforvaccinationrateonthefollowingfactorsdependingoninformationavailability:(1)announcedvaccinesuppliesanddeliveryschedules,(2)policymakers’guidanceonvaccinationtargets,and(3)currentvaccinationpace.Weacknowledgethattherearedifficultiesassociatedwithaccomplishingveryhigh(>90%)ratesofvaccinations,forinstancevaccinehesitancyaswellasdifficultieswithdeliveringvaccinestocertainsegmentsofthepopulation,likeinruralremoteareas.Source:MorganStanleyResearchestimates

Stillarapidlyevolvingsituation:Asvaccinationsarepickingup,wearestartingtoseepolicymakersimplementingdifferentiatedrulesforthosewhoarevaccinatedandthosewhoarenot.AconsensusisalsoformingthatCovid-19islikelytocontinuecirculating,accordingtoasurveyofmorethan100immunologists,infectious-diseaseresearchersandvirologistsconductedbyNature.PolicymakersinSingaporehaverecentlymadethecaseforashiftinitsCovid-19approachasitpreparestolivewithendemicCovid-19.However,authoritiesinSingaporehaverecentlytightenedmeasuresyetagainduetotheemergenceofsizeableclusters.Thisremindsusthatinthenearterm,therisksoffurthercontainmentmeasurescannotberuledout,especiallyforNorthAsiaandSingapore.

Covid-managementapproachmightshiftasvaccinationsreachcriticalthresholds:

Acrosstheregion,weexpectthattherewillnotbeuniformityontheacceptedrateofvaccinationsbeforewhichpolicymakerswillrelaxcontainmentmeasures.Forinstance,

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wewouldexpecttheNorthAsiaandSingaporeeconomiestoprobablywanttoachieveahigherrateofvaccinations(i.emuchhigherthan70%)beforepolicymakerswillbecomfortablewithafullrelaxationofcontainmentmeasures–giventheirlowCovidcasesapproachsofar.Forinstance,infectiousdiseaseexpertsinChinahavesuggestedvaccinationratesof80-85%asapotentialtarget.Meanwhile,othereconomiesmightconsideropeninguptheireconomiesasvaccinationsreachcloserto70%.However,fortheregionasawhole,wedoseeafullerreopeningintheworkstowardstheendoftheyearasvaccinationsarerampedup.

Threescenariosfor2H21:

Weseethreepossiblescenariosfortheremainderofthisyear:

Basecase–Avoidingfurtherrisksoflockdowns:TheDeltavariantdoesnotmateriallyimpacttheefficacyofcurrentvaccinesinpreventinghospitalisationsandfatalities.Intheregion,asdiscussedbefore,asignificantportionoftheadultpopulationinmanyeconomieswouldhavebeenvaccinatedbyend-4Q21.Asvaccinationsgainpace,webelievethatpolicymakerswillbeabletorelaxrestrictions,potentiallyinlinewiththeirvaccinationpace.WealsoseemoreeconomiesintheregionbeginningtoadoptachangeintheirCovidmanagementapproach,movingtoadoptthemodeloflivingwithinstancesofCovidcasesratherthankeepingtothecurrenttoughstance.Inotherwords,wecouldpotentiallyseemoreeconomiesintheregionadoptingtheapproachoftheUKinwhichtheywillbemorefocusedonthetrendinhospitalisations,hospitalbedcapacity,ratherthantheabsolutenumberofCovid-19cases.Therisksoffurtherlockdownsandeventargetedmeasuresdeclinemeaningfully.Againstthisbackdrop,weseeafull-fledgedrecoverytakinghold,startingfrom4Q21.

Downsideriskscenario–Missingthemarkonvaccinations:Delaysinvaccinesupplyoraslowdowninthepaceofvaccinationsduetohesitancyaroundtheremainingsegmentsofpopulationmeanthateconomiesfailtoreachthethresholdsthatprovidepolicymakerswiththecomforttoavoidlockdowns.Asvaccinationratesmissthemark,policymakerscontinuetokeepatightlidoncontainmentstrategiesandafullreopeningisdelayedwellinto2022.

Upsideriskscenario–Vaccinedeliverysurprisesontheupside:Thevaccinationeffortsgainsignificantmomentum,allowingalargepartofthepopulationtobevaccinatedbyearly4Q21.PolicymakersalsobegintoshifttheirCovidmanagementapproachawayfromcontainmenttolivingwithCovid.Most,ifnotallrestrictionsareremovedby4Q21,boostingconsumerconfidenceandconsumptionitself.

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EquityStrategy:ChallengesContinue,butIdentifySelectiveReopeningOpportunities

JonathanGarner,DanielBlake

WeremaincautiousonAsiaexJapanandEMequitiesandrecentlycutourJune2022targetprices.SeeournoteAsiaEMEquityStrategy:CuttingourIndexTargets(exJapan)onReducedValuationAssumptionsforChina,9Jul2021.OurpreferredmarketsareAustralia,SingaporeandIndiawhilstwefavourQualityasastylefactor.

TheongoingbattlewithCovid,particularlyasmorevirulentvariantshavetakenhold,isoneofseveraladversefactorswhichledustoacounter-consensusviewaslongagoasearlyFebruarythatthehighforthereflation/recoveryphaseofmarketdynamicswasalreadyin(seeAsiaEMEquityStrategy:WatchoutBelow-8reasonswemayhaveseenthehighfortheyearinMSCIEM,2Feb2021).TheothermajorconstraintsonreturnshavebeenChina'stighteningofcreditconditionsandinternetsectorregulation.

Exhibit12:MSCIAPxJvsMSCIACWITotalUS$ReturnSince1990–themegatrendremainstowardsunderperformance

RelativePerformanceofMSCIAPxJvsMSCIACWI(Since1990)

200

180

160

140

120

100

80

60

40

90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20

Source:MSCI,FactSet,MorganStanleyResearch

Exhibit13:MSCIAPxJvsMSCIACWITotalUS$ReturnSince2020–APxJhasnowgivenbackalmostalloflastyear'soutperformance

RelativePerformanceofMSCIAPxJvsMSCIACWI(Since2020)

112

110

108

106

104

102

100

98

96

94

Jan-20

Apr-20

Jul-20

Oct-20

Jan-21

Apr-21

Jul-21

Source:MSCI,FactSet,MorganStanleyResearch

WehavealsolongfeltthatthesheercomplexityofthecurrentCovidsituationacrossAsiamakesone-size-fits-alltypeanalysisonbroadthematics(suchas"re-openingplays")unhelpful.Countriesarefollowingdifferentstrategiesrangingallthewayfromeliminationtomitigationwithaplethoraofapproachesinvolvingagreaterorlesserdegreeofrestrictionsonbusinessandconsumeractivitybothdomesticallyandinrelationtointernationalconnectedness.Vaccinationrates,casenumbers,domestichealthcaresystemstressandvariantsalldiffersignificantly,andthetimingofoutbreakshasbeendifficulttopredict.

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Exhibit14:GlobalCovid-19heatmap-Weeklychangein7dmovingaveragenewcases-AsynchronousandrepeatedwaveshighlightcomplexityofCovidasaninvestmentfactor

Source:Worldometer,Bloomberg,variousnationalsources,MorganStanleyResearch

Covidrestrictionsstillinfluencingmarketperformance

Whatwecansaywithsomeclarityisthatwhererestrictionsonactivityversuspre-Covidbaselinesareincreasingrelativetopeers,onecandocumentanegativeimpactonstockmarketrelativeperformanceandviceversa.Thisrelationshipismorecompellingthanthatforcasedataalthoughwehaveexploredcasetrendsforearlywarningsignalsofoutbreakandcontainment(andhencesubsequentimposition/looseningofrestrictions).Importantly,thisrelationshipexistsdespiteawidevariationinsectorskewfordifferentmarketindicesinAsia,althoughweprefertodemonstrateitagainstadomestic-revenue-weightedreturnsseriesforeachmarket.Itthereforeseemstorepresentanelementofmarketriskthatisgeographicandpandemicrelated.

ThemeasureofrestrictionwhichweuseisthedailyCovidStringencyindexpublishedforawiderangeofcountriesgloballybytheOxfordUniversityBlavatnikSchoolofGovernmentaspartoftheCovid-19GovernmentResponseTracker(OxCGRT)program.Policyresponsesaretrackedsince1January2020,covermorethan180countriesandarecodedinto23indicators,suchasschoolclosures,travelrestrictions,vaccinationpolicy.Thesepoliciesarerecordedonascaletoreflecttheextentofgovernmentaction,andscoresareaggregatedintoasuiteofpolicyindices.

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Exhibit15:Correlationoftwo-weekchangeofOxfordStringencyIndexandrelativeperformanceofequitymarkets–marketstendtodopoorlyaslockdownstringencyrises

CorrelationsinceMar-2020basedon

preceding2-weektotalreturns

30%20%10%0%-10%-20%-30%-40%

24%

11%

8%

5%

2%

0%

-6%

-7%

-7%

-9%

-13%

20%

20%

20%

-23%

-24%

-24%

-25%

-25%

-35%

-36%

-

-

-

-28%

-30%

30%

-30%

33%

Malaysia

Thailand

India

UAE

France

-

Chile

-

Qatar

HongKong

Korea

Turkey

Philippines

SaudiArabia

Japan

Indonesia

Singapore

China

US

Taiwan

SouthAfrica

Poland

Russia

Brazil

Mexico

Germany

Australia

UK

Asia

EMEA

LatAm

DM

Source:OxCGRTProject,OxfordUniversity,BlavatnikSchoolofGovernment,MSCI,RIMES,MorganStanleyResearch

Exhibit16:Correlationoftwo-weekchangeofOxfordStringencyIndexanddomesticrevenue-weightedperformanceofmajorAsiaPacificequitymarkets–domesticdemandsensitivestockstendtodoworseaslockdownstringencyrises

on

weektotalreturnsMar-2020based

10%

0%

-10%

-20%

-30%

-40%

-50%

-60%

2%

1%

-5%

-15%

18%

19%

-25%

-

-

-27%

31%

-

-42%

-43%

50%

Japan

China

HongKong

Indonesia

Taiwan

Singapore

Malaysia

Philippines

Korea

Thailand

India

Australia-

EMAPAC

DMAPAC

Source:OxCGRTProject,OxfordUniversity,BlavatnikSchoolofGovernment,MSCI,RIMES,MorganStanleyResearch

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Exhibit17:ChinaStringency,ServicesPMIandRelativeReturns

China

140

130

120

110

100

90

80

70

60Jan-20Mar-20May-20Jul-20Sep-20Nov-20Jan-21Mar-21May-21

OxfordStringencyIndex(RHS)

Equitymarketreturn,reltoMSCIACWI

IHSMarkitServicesPMI(SA,RHS)

Source:OxCGRTProject,OxfordUniversityBlavatnikSchoolofGovernment,MSCI,RIMES,Haver,MorganStanleyResearch

100

90

80

70

60

50

40

30

20

10

0

Exhibit18:IndiaStringency,ServicesPMIandRelativeReturns

India

140

130

120

110

100

90

80

70

60Jan-20Mar-20May-20Jul-20Sep-20Nov-20Jan-21Mar-21May-21

OxfordStringencyIndex(RHS)

Equitymarketreturn,reltoMSCIACWI

IHSMarkitServicesPMI(SA,RHS)

Source:OxCGRTProject,OxfordUniversityBlavatnikSchoolofGovernment,MSCI,RIMES,Haver,MorganStanleyResearch

100

90

80

70

60

50

40

30

20

10

0