Asian businesses are gradually rebooting after governments quelled the initial wave of the coronavirus pandemic, drawing attention to equity opportunities in the region. Equity investors should take a closer look at companies whose valuations absorbed unjustified blows before and during the pandemic.

Governments in the Far East have done a relatively effective job at coronavirus containment compared with Europe and North America. After having experienced the brunt of the SARS outbreak nearly two decades ago, they knew how to respond swiftly with aggressive lockdowns and virus tracking. With parts of the economy starting to come back online ahead of Western peers, certain companies and industries deserve attention.

Even before the onset of COVID-19, Asian value stocks were trading at especially attractive levels. Now that the valuation dispersion has widened further (Display), we believe that value stocks—companies that are (arguably) inexpensive owing to a short-term controversy—are poised to outperform once markets stabilize this year. Indeed, there’s a precedent for such a move: value stocks in Asia ex Japan have outperformed in the initial stage of previous crisis-to-recovery cycles, such as after the global financial crisis in 2009–2010 and after the European debt crisis in 2012–2013. And the massive amounts of fiscal stimulus being pumped into regional economies could help support cyclical companies that are more dominant among value stocks.

Faster Out of the Block

In South Korea, Hong Kong and Taiwan, governments never completely shuttered swaths of their economies as they did in China, the US and Europe. In recent weeks, China’s government has allowed silenced factories, stores and restaurants to reopen as the lockdown of Wuhan, the original epicenter, has ended. That said, the coronavirus battle is uneven across Asia. Countries like India, Indonesia, Thailand and the Philippines are still coming to terms with the pandemic, with low testing rates, late stay-at-home directives and stressed healthcare systems.

Equity benchmarks for the individual countries reflect that divergence. Indian and Indonesian stocks have fallen much more sharply than peers in Taiwan, China and South Korea, since markets began to tumble on February 21 and through the rebound in recent weeks (Display).

Still, there will be plenty of challenges, even for successful economies. As factories ramp up in China and South Korea, exporters will face slack demand because the US and major economies in Europe are still in a self-enforced lockdown. And these countries still must remain vigilant to guard against a potential second wave of outbreaks that could impact economic activity and markets.