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Asian stocks end turbulent year with strong gains amid optimism for 2021

Asian equities advanced in the final month of 2020, finishing an eventful year with strong gains, amid optimism for 2021 as vaccine rollouts are expected to help boost the global economic recovery.

The MSCI AC Asia-Pacific All Cap Index rose 5.61% in December 2020, bringing its full-year gain to more than 16%. Regions where the virus was relatively under control were the top gainers last year, notably China, South Korea, Taiwan, Japan and New Zealand.

Nomura strategists remain "constructive" on Asian stocks this year, citing factors including a vaccine-driven economic and earnings recovery, ample policy support and U.S. President-elect Joe Biden's victory in the 2020 presidential elections.

"Modest cyclical recovery in the near term on rising optimism around vaccines/therapeutics is likely to exert modest upward pressures on long bond yields, which in our view should imply some likelihood of rotation from fixed-income to equities, as investors chase yields and returns," Nomura said in a report published last month.

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BlackRock Investment Institute upgraded its six- to 12-month outlook on Asian equities, excluding Japan, to "overweight," saying, in a Dec. 7, 2020, report, that many countries within the region have effectively contained the virus "and are further ahead in the economic restart."

Sector-wise, analysts see a bright outlook for technology and e-commerce stocks, which have generally benefited from last year's lockdown restrictions.

Sustainability-related industries are also expected to gain from a focus on climate change, Ronald Chan, chief investment officer for Asia ex-Japan equities at Manulife Investment Management, said in a Dec. 28, 2020, note. Region-wise, Chan prefers North Asia to Southeast Asia this year, in part due to potential softening of Sino-U.S. relations, a weak U.S. dollar and more capital flow into China.

Sea of green

As in the prior month, all 14 regions tracked by S&P Global Market Intelligence posted gains in December 2020.

South Korea's KOSPI Composite led with a nearly 11% month-over-month jump, making it the best-performing index among peers in 2020.

Samsung Electronics Co. Ltd. and SK Hynix Inc. soared more than 21% each last month as the World Semiconductor Trade Statistics issued a report on Dec. 1, 2020, projecting the chip market to expand 8.4% in 2021, following an estimated 5.1% increase in 2020.

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India's S&P BSE Sensex climbed 8.2%, while Taiwan's TAIEX advanced 7.4%.

Hong Kong's Hang Seng index gained 3.4% last month but could not recover losses for 2020 as a whole, as only about a quarter of the index's constituents made a positive return in 2020.

"We argue that as the economy recovers in China and Hong Kong, supported by earnings recovery, the appetite for undervalued old economy cyclical names will rise," said DBS analysts in a Jan. 5 note focused on Hong Kong. "As for the new economy stocks that have recently taken a beating mostly due to uncertainty from antitrust concerns in China, it may take a while for a full recovery before the dust settles."

Hang Seng Indexes Co. Ltd., the compiler of the city's benchmark stock index, proposed late last month a new methodology to ensure a more balanced representation of major industries and geographies, as well as to allow newly listed sizable companies to join the index sooner.

The Shanghai SE Composite index rose 2.4%, bringing its year-to-date rally to nearly 14%. China is expected to remain a "bright spot" this year as its economy continues to recover, Manulife's Chan said.

Elsewhere, Japan's Nikkei 225 advanced 3.8%, while Singapore's FTSE Straits Times gained 1.3% on the month. The first batch of Pfizer Inc.-BioNTech SE COVID-19 vaccine arrived in Singapore late last month.