With the imminent easing of lockdowns and the implementation of highly supportive policies from Asian governments, an economic recovery is on the horizon for the region, UBS said in its latest outlook for the Asian economy in the second half of 2020.

Even with some new infection clusters, such as the fresh outbreak of COVID-19 that has resulted in more than 100 cases reported in Beijing, it is hard to see an outbreak overwhelming local healthcare system, Min Lan Tan, head chief investment officer APAC of UBS Global Wealth Management, told reporters in a media call on Wednesday, adding that the economy will reopen sustainably.

Tan said the easing of lockdowns and opening up bear risk of a resurgence of infections, but at this moment a second round of international lockdown is unlikely.

In addition to the Chinese mainland, which started easing lockdowns in measured steps in April, other markets including South Korea, Hong Kong, Taiwan and Singapore have also moved in the direction.

Singapore announced on May 28 that the country will resume economic operations before the end of June as it exits the circuit breaker period and plans to enter the second phase of reopening, The Straits Times reported.

Investment opportunities

Therefore, "we believe there are still room for equity to move higher," Tan said, suggesting investors to diversify their stock portfolio, not only to lower the risk but also to catch the opportunities.

"The impact of recovery will be differentiated and uneven in different sectors," she said, noting the so-called digitalization of everything, including automation and robotics, fintech, etc., should remain a core investment strategy in the years to come.

However, investors still need to prepare for elevated volatility due to the heating up U.S.-China tensions, UBS warned in the outlook.

The decoupling between the world's two largest economies are "inevitable", but neither of them wants tariff war escalation when economic recovery is in need, Tan said.

White House's latest restriction on Huawei and the entity list do have great impact but the outcomes are "manageable" and China will be reinforced to speed up investment in critical technology, according to Tan.

Mass supply chains exit 'unlikely'

Another impact of the decoupling is that companies are likely to reassess supply chains, UBS predicted, noting Japan, Korea and Taiwan have been actively bringing production lines home while Vietnam, India and Malaysia have been benefiting most from development of non-China supply chains.

However, the bottom-line data suggested that a mass exit out of China is still very unlikely, according to Tan.

According to a survey conducted by the American Chamber of Commerce in China in April, 83 percent of surveyed American businesses have no plans to relocate outside of China, while some are considering diversifying their sourcing.

"What they adopt is China plus strategy," which means keeping the existing manufacturing base in China to serve the local market but also investing elsewhere, Tan said.

She also said that by identifying supply chain stability as one of the "six guarantees" – China's post-corona recovery plan, which also includes guaranteeing employment and the basic livelihoods of the people – the Chinese government has taken quick action during the pandemic to ensure both domestic and foreign enterprises get equal access to preferential policies.

She concluded that the pandemic and the geopolitical tension are pushing China to accelerate domestic reform in order to break from the U.S. containment in technology and in finance.