(Bloomberg) -- Asian stocks are falling further behind their global peers, buffeted by a resurgence of Covid-19 cases across the region and mounting investor concern over inflation.The MSCI Asia Pacific Index slumped 3.2% this week, and is now down 2.7% in May. That’s put the gauge on track for its worst monthly performance since March 2020 -- when markets took the biggest hit from the pandemic. The regional benchmark is also trailing MSCI’s broadest measure of global equities for a fourth straight month, and market watchers are citing several reasons why this underperformance may continue.While inflation has emerged as the most immediate concern for equity investors worldwide, confidence in Asia has also been hit due to a worsening Covid-19 outbreak from Taiwan to Singapore. Earnings upgrades are slowing and valuations still remain relatively high in some growth sectors, analysts say.“The sentiment now is definitely not positive,” said Banny Lam, head of research at CEB International Inv Corp. “Asian stocks are swayed by the inflation in the U.S. People are very worried about that the U.S. will start to roll back stimulus earlier than expected.”The worst of this week’s selloff came after data on Wednesday showed U.S. consumer prices climbed in April by the most since 2009. The MSCI Asia Pacific Index slumped 1.8% on Thursday.The virus remains the other major sore point for Asian investors. Singapore, one of Asia’s top-performing markets this year, saw its stock benchmark plunge as much as 3.2% on Friday, the most in the region, as the city-state said it will return to the lockdown-like conditions it last imposed a year ago to contain a rising number of untraceable infections.At the same time, India, Japan and other parts of Southeast Asia are also batting a fresh surge in cases and tightening restrictions, with relatively slow vaccine rollouts and delays in reopening borders compounding concerns for investors.“You have to have a strong vaccination program in order to open up and rejoin the rest of the world and keep the virus at bay,” said Mark Matthews, head of Asia research with Bank Julius Baer & Co. “Unfortunately, most of Asia has not had very strong vaccination program.”Having led global equity gains in 2020, Asia is sharply underperforming peers in the U.S. and Europe in 2021. While the Asian benchmark is now little changed for this year, the S&P 500 Index and the Stoxx 600 Index are both up about 11%.Seasonality also seems to have playing a role in the recent selloff. May has historically been the worst month for the MSCI Asia Pacific Index, with the benchmark averaging a 2% decline over the past 10 years, according to data compiled by Bloomberg.Profit, InflationWhile companies across Asia were early beneficiaries when it came to the pandemic recovery after strict lockdowns at the start of 2020, those gains have largely been priced in. Twelve-month earnings estimates for the Asia Pacific gauge have been raised 11% this year by analysts, according to Bloomberg data. That’s compared to 17% in the U.S.Inflation fears may pick up over the next few months as U.S. demand for services accelerates over the summer, according to Tomo Kinoshita, a global market strategist at Invesco Asset Management in Tokyo. “Once the inflation pickup slows pace, markets could calm down,” he said.U.S. Producer Prices Top Forecasts, Adding to Inflation PressureChina FactorAs new Covid-19 outbreaks across Asia add uncertainty to the pace of the demand recovery, Tai Hui, chief Asia market strategist at JPMorgan Asset Management, points to the low correlation between Chinese and global stocks.U.S., Europe Likely Preferred Markets in 2021: JPMorgan’s Hui (Video)“The Chinese onshore market’s low correlation with international equities could be a blessing in disguise in this choppy environment,” Hui wrote in an email.China’s local stocks have been showing early signs of relative strength against their Asian peers after spending much of the year under pressure. The CSI 300 Index rallied 2.3% this week, outperforming the region.A gauge of 30-day correlation between the CSI 300 Index and the MSCI ACWI Index has turned negative for the first time since October 2019, according to data compiled by Bloomberg.Analysts See Local Opportunities in China Weakness: Taking StockFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.