One country here in Asia has seen only 2,260 COVID cases in total since the start of the outbreak. It has kept the death toll remarkably low, at just 14 people. Its pandemic response has been held up as a model for others to follow.
Another Asian nation is battling more than 4,000 deaths per day at the moment and has recorded 25.5 million COVID cases since the pandemic began. Its COVID death toll exceeds 283,000 -- more than a quarter of a million bodies in the street.
So where would you expect the stock market to be faring better? In Nation No. 1, Taiwan, or Nation No. 2, India?
Taiwanese stocks have been battered over the course of the last month and are the worst performers in the world over the last week or so. The benchmark Taiex index has lost 6.6% in one month and shed 10.9% in just one week through its Wednesday low. (It has since rallied 5.1% in the last two days).
Indian stocks, on the other hand, have been essentially bulletproof despite the country experiencing what right now is the world's most intense outbreak of COVID-19 since the disease set in.
We may be confusing headlines telling us that COVID is running rampant in both places. And, comparatively speaking, it is. Taiwan on Tuesday reported 243 new cases, a day after setting a one-day record of 335 COVID infections. Each day this week it as been adding another 10% to its total infections.
But India's battle is on an entirely different scale. It is fast approaching the 33-million record for COVID cases set in the United States and it is setting historical per-day global records for infection and deaths. While India has recorded half the number of fatalities as the United States, both the scale of infection and the death toll are sure to be masked in the countryside, where scores have died without testing.
"It's a complete massacre of data," Bhramar Mukherjee, an epidemiologist at the University of Michigan, tells The New York Times. "From all the modeling we've done, we believe the true number of deaths is two to five times what is being reported."
You wouldn't know it looking at India's stock market.
The benchmark Sensex Index is looking at a 4.6% gain over the last month even though India has been hitting a sharp peak in epidemic trends that started in earnest in March. Shares there have bounced around a little, but the Sensex stands at much the same point as when the infection rate really took off.
So why is the market fading in Taipei but holding strong in Mumbai?
Taiwan tightens up
In Taiwan, the market is reflecting the tightening of restrictions in response to the island's coronavirus alert level, which it raised nationwide on Wednesday to "Level 3." That means people must wear masks at all times in public, the size of gatherings is restricted, and non-essential locations such as entertainment venues, libraries, sports facilities and community centers are closed.
Taiwan's major cities were already at that level. Level 4 restrictions would involve a total lockdown, with people allowed out only to buy necessities or seek medical care. The mayor of New Taipei City warns residents to prepare for that eventuality.
It's a shock because Taiwan had done so well. Last year, it went 253 days in a row with zero local infections. The latest outbreak seems to have spread from pilots and on into the community.
For stocks, a warranted downturn has likely led into forced selling that has been overdone. It has come as a shock to anyone with program trades or who has been programmed by the market to expect tech to run and run. Leveraged investors have had to ditch positions during an unexpected dip.
Stocks in both Taipei and Mumbai have been some of the stars in Asia over the last year, so investors likely will still show impressive gains in their portfolios in both places. Over the last three years, the Taiwan market is the best in the world.
The Taiex had also been Asia's top performer during the pandemic. Despite its recent woes is still up 48.6% in the last 12 months. But India's market is currently Asia's best, advancing 66.1% in the last year, meaning it has narrowly edged out the strong showing in South Korea, where the Kospi is up 60.2% in the last 12 months.
Keep an eye on India
We should watch for potential weakness in India, where stocks are still expensive. I'm looking at a Nomura report explaining that India's second wave is a "humanitarian rather than an economic crisis" and wondering how that can be true. Sources I've been trying to track down for stories are struggling to maintain contact and any semblance of normal business life as the world descends into health chaos around them.
It is true that India's virus response has been more "nuanced," as Nomura puts it, without a total nationwide lockdown this time around. Still, we are working through the peak of the disease now and the economic effects will surely manifest in future months.
The Taiwan and South Korean markets are very similar in that both are dominated by semiconductor manufacturers. The intense chip shortage has been a boon to the business of Taiwan Semiconductor Manufacturing Co. (TSM) as well as Korean manufacturers Samsung Electronics L:SMSN and SK Hynix HXSCL.
Hon Hai Precision Industry HNHPD, better known as Foxconn, has been another star in Taiwan. Apple's largest supplier saw its share price shoot up 80.7% between the March 2020 selloff and a recent March 2021 high. Taiwan Semiconductor has more than doubled, up 110% since March 2020 even after a 5.3% selloff in the last few days. Foxconn has dropped substantially, down 10.6% since May 7.
Investors should not overreact to the COVID outbreak in Taiwan. Yes, the numbers are unprecedented, but the numbers are also eminently controllable. The greater worry for investors would be a sustained selloff in tech.
The Taiwan market is not looking overly expensive at a price-to-earnings (P/E) ratio of 22.85, according to CEIC, down from 23.45 in February due to the selloff. It has climbed from around 16 at its COVID lows. Indian equities, however, are trading at a P/E ratio of 31.90, one of the most expensive rates in the world. The Indian P/E ratio leaped with a re-rating in March 2019 and is now double its "expensiveness" at its March 2020 lows.
Nomura warns investors to watch whether the shift out of Taiwanese equities represents anything more significant, such as a shift into U.S. and European equities and parts of the world where vaccination rates are high. Asia will keep muddling through COVID outbreaks of varying length and severity until its perilously low vaccination rates improve.
The Taiwanese and Korean equity markets also serve as decent proxies for global tech stocks, so it is interesting to see the market in Taipei sell off while it holds strong in Seoul. For now, it appears the Taiwanese selling is short-lived, but we should watch for any sustained trends that expand to other Asian markets.
Quant traders had bought heavily into Taiwanese equity futures, and indeed Asian equity futures more broadly. The unexpected jump in Taiwanese volatility has caught the quants by surprise, which could lead to a chain reaction of selling in other Asian markets. At the same time, though, discretionary hedge funds have bought into this newfound weakness in Taiwan in contrarian fashion.
"We think investors would do well to keep an eye on whether Taiwan's equity markets turn out to be the Achilles heel of both Asian equity markets and global tech sector stocks," Nomura quant strategist Masanari Takada writes.