Research & Investment Strategy

Asia supply chains: a potential shock to growth

Key points

  • Small, open economies such as Singapore, Vietnam and Malaysia are the most exposed to final demand from the US, Europe and China. This makes them the most vulnerable to the coronavirus growth interruption. Thailand and Hong Kong have the largest exposure to tourism (as a % of GDP) and face the risk of a wipe-out of tourism revenue for some time.
  • China is a main contributor to Asia’s supply chains for complex products. Production shutdowns in China would therefore have a tangible economic impact on its supply-chain partners, both upstream and downstream.
  • Combining the supply and demand exposures, we assess an external shock equivalent to that of the global financial crisis would subtract regional growth by 2.7 percentage points (ppt), while a worse-than-GFC shock could see Asia’s growth cut by 4.2ppt, similar to the total revisions made to our growth forecast since the start of COVID-19.
  • The short-lived production shutdown in China means that the supply shock for the region will be dwarfed by demand disruptions. We expect the latter to add to disinflationary pressure in Asia that allows central banks to continue to ease policies this year.

This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.

It has been established on the basis of data, projections, forecasts, anticipations and hypothesis which are subjective. Its analysis and conclusions are the expression of an opinion, based on available data at a specific date. All information in this document is established on data made public by official providers of economic and market statistics. AXA Investment Managers disclaims any and all liability relating to a decision based on or for reliance on this document. All exhibits included in this document, unless stated otherwise, are as of the publication date of this document. Furthermore, due to the subjective nature of these opinions and analysis, these data, projections, forecasts, anticipations, hypothesis, etc. are not necessary used or followed by AXA IM’s portfolio management teams or its affiliates, who may act based on their own opinions. Any reproduction of this information, in whole or in part is, unless otherwise authorised by AXA IM, prohibited.

This document has been edited by AXA INVESTMENT MANAGERS SA, a company incorporated under the laws of France, having its registered office located at Tour Majunga, 6 place de la Pyramide, 92800 Puteaux, registered with the Nanterre Trade and Companies Register under number 393 051 826. In other jurisdictions, this document is issued by AXA Investment Managers SA’s affiliates in those countries.

In the UK, this document is intended exclusively for professional investors, as defined in Annex II to the Markets in Financial Instruments Directive 2014/65/EU (“MiFID”). Circulation must be restricted accordingly. 

© AXA Investment Managers 2020. All rights reserved