“Vaccinations are being rolled out, but slow enough that lockdown risks are still real in many places,” said Joshua Crabb, a portfolio manager at Robeco in Hong Kong. “It makes sense to keep a mix of beneficiaries of reopening and some more defensive names whilst keeping a little in reserve to buy any selloff in the event markets sell off more aggressively.”

The virus is the most immediate threat to the region with India reporting the world’s highest tally of daily new infections, Japan declaring a new state of emergency in Tokyo, Osaka and two other prefectures, and Hong Kong and Singapore delaying an announcement for an air-travel bubble. Compounding the concerns is the potential for tighter policy in China as the government seeks to prevent overheating in the world’s second-largest economy.

Sore Point

Indian stocks are the biggest sore point, with the S&P BSE Sensex Index close to entering a technical correction, as global funds turned net sellers of local equities in April after a six-month buying spree. The gauge is Asia’s worst-performing major national benchmark this month as the country reels from a severe shortage of hospital beds and vaccines.

“It’s still too soon” to buy the dip as the health care system and economy try to cope with the crisis, Stefan Hofer, chief investment strategist at LGT Bank AG, told Bloomberg Television.

Meanwhile, bets that Southeast Asia’s cyclical-heavy stock markets could drive broader regional gains this year are evaporating fast thanks to the resurgence in infections.

While funds are more optimistic on Japan, the Topix Index is trading almost 5% below its March high as the country imposes some of its toughest virus-control measures yet with the Tokyo Olympics drawing near. The likes of JPMorgan Asset Management and Amundi SA continue to wager that Japan’s cyclical and export-oriented stocks will benefit from exposure to global economic recovery.

China Tightening

The pandemic is well under control in China, but stock watchers are now worrying about the impact of a tighter liquidity environment. Policy makers have signaled their intention to wind down pandemic-fueled stimulus as consumer spending rises more than expected and growth soars.

Tightening monetary conditions suggest China will experience at least a “moderate” slowdown, which would weigh heaviest on Asian equities, according to Citigroup Inc. Other regions regaining manufacturing market share lost during the pandemic may also be responsible for a loss of momentum in the Chinese economy, Citi strategists noted.

“If commodity prices remain supportive, China weakness will mostly impact Asia in emerging markets,” a team including Dirk Willer wrote in a note Thursday. The MSCI EM Asia Index has slumped about 8% since its mid-February high and China’s CSI 300 Index remains in a technical correction.

Concentrated Losses

Still, losses have mostly been concentrated in areas under pressure from the virus, with Taiwan and Vietnam’s benchmark equity gauges bucking the trend and trading close to record highs, thanks in part to their successful management of the pandemic.

The recent slide in 10-year U.S. Treasury yields and a weakening dollar could also provide some support for the region’s shares, as traders turn their attention to the ongoing earnings season. And while some investors are cautious on the short-term, others note that the factors driving optimism toward the region at the beginning of the year haven’t gone away.The MSCI Asia Pacific Index rose 0.5% in early trading on Monday.

“Some emerging markets face near-term challenges including a virus resurgence, slow vaccine rollouts and rising inflation that may force the hand of their central banks,” wrote BlackRock Investment Institute strategists including Wei Li in a recent note. “Yet we expect their economic restart to likely be delayed — but not derailed.”