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Asian stocks rebound in October as virus seen 'under control'

Following a broad market sell-off in September, Asian equities saw a slight rebound last month as the spread of COVID-19 appeared to be more contained in the region than in developed economies.

The MSCI AC Asia-Pacific All Cap Index inched 0.7% higher in October, bringing the gauge back into expansion territory this year after a brief dip into the red a month prior. While a resurgence of COVID-19 cases in the U.S. and Europe kept investors on the edge, the virus was seen as broadly contained in several countries across the Asia-Pacific, according to analysts.

"The pandemic in Asia is beginning to become relatively under control," analysts at Hang Seng Bank wrote in an Oct. 21 investment outlook. "Economic and corporate earnings growth will pick up first, and equities of related industries will be driven by demands within the region, making them attractive."

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The economic shock from the pandemic has provided opportunities for some countries to accelerate reforms, particularly in China's capital markets and India's agriculture sector, analysts at Nikko Asset Management wrote in an Oct. 13 note. Those reforms are likely to benefit software, healthcare, financial inclusion, industrial automation, renewables and specific areas of consumption.

"The consolation for Asia is that economies in the region continue to fare better than the rest of the world," the analysts added.

Philippine stocks leading the way

Eight of the 14 countries tracked by the MSCI AC Asia-Pacific All Cap Index were in positive territory in October, led by the Philippines' benchmark PSE Composite with a 7.8% monthly gain.

The Philippine government continued to ease quarantine measures across the country, allowing shortened curfews in its capital city as well as the reopening of certain hotels.

Indonesian equities also rebounded, with the Jakarta Composite up 5.3%, even as the country remains with the highest number of COVID-19 cases in Southeast Asia.

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Meanwhile, the Shanghai SE Composite index eked out a 0.2% gain, taking its year-to-date growth to 5.7%.

China's economy is likely to emerge as the only major economy to register full-year growth in 2020 after its GDP expanded further in the third quarter, albeit at a weaker-than-expected rate.

According to a global market outlook report published Oct. 12, Standard Chartered analysts remained positive on Chinese equities, saying that risks from China's margin financing appeared to be "somewhat mitigated by greater policymaker scrutiny, economic stimulus and an improving earnings outlook."

Political instability 'key risk' for Thai stocks

Thai stocks remained as the region's worst performers in October as political instability added concerns to a tourism-reliant economy already beset by the pandemic. The SET 50 index fell 4.5% on the month, widening its year-to-date loss to more than 30%.

Bangkok was placed under a state of emergency last month amid large demonstrations demanding reforms of the government, undermining investor confidence at a time when unemployment is rising and the all-important tourism sector struggles to return to pre-pandemic levels.

While Thai equities could see a rebound in the near term in line with regional and global markets, the upside is limited, Chanpen Sirithanarattanakul, head of research at DBS, told S&P Global Market Intelligence, adding that political instability is a "key risk" to the outlook.

In South Korea, the Kospi Composite index dropped 2.6%, down for the first time since March. Singapore's FTSE Straits Times extended its losses as it fell 1.7% last month, while Japan's Nikkei 225 slipped 0.9%.