Housing more costly; shoppers more active

Resilient home prices will likely be a common theme in Asia in 2021e, driven by a low-rate environment and ample liquidity. While momentum in mainland China is subject to debate, the country is anchored by the government’s stability agenda. Hong Kong and India are enjoying alltime low mortgage rates, while the dynamics in ASEAN are supported by government policies. Alongside strength in the residential segment, the retail recovery remains a strong theme in 2021e, with large upswings expected to come in Hong Kong and ASEAN. The former will benefit from the eventual reopening of the border, driving travel and tourism-related consumption; the latter will benefit from the lifting of movement restrictions. Mainland China, India and Singapore retail will likely continue to normalise as the recovery has largely played out.

WFH: a challenge that brings opportunities

The abrupt shift to working-from-home (WFH) has had a significant impact on demand for office space and landlords have taken a beating. While the correction is logical, we question the magnitude of the selloff. We believe this creates an opportunity to identify potential mispricing in stocks as a result of an overly pessimistic outlook that deviates from market fundamentals. We believe the recovery in Hong Kong’s office demand will be a lengthy process. However, we have anon-consensus positive view on Singapore’s office market, backed by our expectation that net absorption will turn positive in 2021e.

Valuation: polarisation to persist

A flight to quality was apparent as investors took refuge in defensive and ‘predictable’ stocks in a volatile market. The preference for quality stocks resulted in a marked divergence in valuations. While we contend that the significant valuation premium assigned to select stocks is fundamentally difficult to justify, we expected it to remain in place as deep value stocks offer a less attractive risk-reward proposition in the absence of notable catalysts.

Regional preference: Hong Kong and ASEAN

Across the Asian markets we cover – ASEAN, Hong Kong, India, and mainland China – we prefer Hong Kong and ASEAN. The catalyst for Hong Kong is the eventual reopening of the border along with a strengthened residential market due to lower mortgage rates. ASEAN rides on a belated COVID-19 recovery theme that is beneficial to the housing market. India and Singapore’s property stocks have both had a strong run, so valuations have become less appealing. Mainland China continues to battle policy headwinds, leverage constraints and concerns about medium-term growth. In terms of stock picks, we identify five investment styles that cater to investors with different risk appetites. We highlight nine stocks that fit the different categories (see Summary: Stock ideas).