Summary

Manu’s positive cyclical outlook for the Asian region is driven by the easing of restrictions, massive policy response and business and consumer resilience. He is confident that China’s stimulus will be massive (2021 is the 100th anniversary of the CCP) and the spill over into the rest of the world will be powerful. The rigorous approach to the crisis seen in China, Japan, Taiwan, New Zealand and Australia led to a fall in infections and a pick-up in activity. Manu believes restrictions will be eased carefully and sufficiently for the bulk of activity to resume in 3Q20. Therapeutics to reduce morbidity and mortality could be widely available by August/September. Airlines notwithstanding, supply side capacity has been preserved. Chinese oil demand is back to pre-crisis levels, suggesting industrial production has recovered. US retail sales and job market rebound are positive signs. European PMIs for June show a smart comeback. Demand has been supported by a policy response of unprecedented scale and will sustain employment, contain financial risks and preserve production capacity. Monetary authorities across Asia are aggressively cutting rates. This time central banks are letting the exchange rate absorb the brunt of the demand shock. The fiscal response has been sizeable and in addition there are some unconventional policy measures that have taken place - Bank of Korea engaging in QE and the Bank of Indonesia printing money. Manu sees evidence that consumer confidence returned very quickly in China, Japan, Taiwan, Hong Kong and Vietnam. Further, China, Japan, Korea and Singapore have capacity to extend policy support. Longer term Manu sees a number of headwinds for the region: globalisation turning to slowbalisation - a slower expansion of trade, investment, tourism, capital, higher savings rates, and bigger swings in capital flows and higher frequency of financial stresses due to QE and related policies. In terms of supply chain reconfiguration, Manu expects Vietnam, Malaysia and Thailand to be the main beneficiaries. Late comers, India and Indonesia, will find export-led development difficult to pull off. The big risk is Geo-Politics. Here Manu is bearish and expects the US-China rivalry to deform politics in Asia for a long time to come. China is determined that the US vacate the Western Pacific. The US will not leave. Taiwan is in the crosshairs and the military might being built will, in Manu’s estimation, be sufficient for China to reunify the island this decade as the US abandons Taiwan without a fight.

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