Real Money’s Alex Frew McMillan sees covid and continued Beijing crackdowns hanging over the region.
There’s no doubt Asian markets disappointed investors in 2021, and questions certainly linger for the new year.
Can the Asian Tigers respond to those questions – and to the legions of investors who felt they were promised something better in 2021?
TheStreet’s Alex Frew McMillan’s not so sure.
“It’s hard to escape the feeling at the end of the year that we are back in much the same position as when it began,” McMillan wrote recently in Real Money.
One big issue – Covid still hovers over the landscape, with no clear exit timeline.
“In Asia, it’s been a cycle of opening up, then locking down again,” McMillan said. “There were tentative attempts to welcome foreign visitors once again in countries like Thailand, Vietnam and Indonesia. That gave way to a hellish pattern of waves of virus washing over the region, with all the travel bans, curfews and stay-at-home orders that unfold in response. Asia’s production schedules and shipments have been heavily disrupted as a result.”
Meanwhile, China persists in its zero-Covid strategy, an ultimately impractical approach that is exported to Hong Kong as East Asia’s financial hub attempts to open the mainland borders.
“Anyone returning from overseas must spend three weeks in an expensive hotel,” McMillan noted. “China will likely maintain its position at least until the “coronation” of President Xi Jinping for a third term. That will come in the power reshuffling confirmed during the weeklong 20th National Congress, the latest in a series of once-every-five-years major meetings that is due to happen in October or November.”
Before that, the Beijing winter Olympics will go ahead from February 4-20 in front of Chinese spectators, if all goes to plan.
“The winter events will make Beijing the first city to host both summer and winter games,” McMillan said. “But the political undercurrents are strong. The Olympics will go ahead minus diplomatic delegations from the United States, United Kingdom, Canada and Australia, in protest of the human-rights violations in China’s westernmost Xinjiang province, and the death of civic society here in Hong Kong.”
McMillan doesn’t see any way to recommend Chinese stocks in 2022, except as a completely contrarian or bottom-feeding play. They are too unpredictable at this stage.
“Someone is going to make a lot of money when Alibaba Group Holding (BABA) and HK:9988 rebounds,” he noted. “It’s an extremely profitable company that saw its share price fall 47.8% in 2021 in a move that had nothing to do with its fundamentals. But a bet on the company is essentially a bet on what kinds of regulations the Chinese government will implement, without warning. It is not your conventional rebound story.”
Overall, if you know what social changes Beijing is going to push next, and which companies it will target, perhaps opportunity lies in your favor.
“But if not, there are better places to invest your money where you can be sure your ownership is valued, protected, and means something,” McMillan said.
