(Sept 12): Southeast Asian equities have cemented their position as a favourite play of money managers positioning for the US Federal Reserve’s (Fed) policy pivot.
Four of the five best-performing Asian equity benchmarks this month are from the region, with Thailand leading the pack. The buying frenzy has put foreign inflows on track for a fifth consecutive week while the MSCI Asean Index is now trading near its highest level since April 2022.
Fuelling enthusiasm about markets from Indonesia to Malaysia is the relatively light positioning by foreign investors, supportive local policies, as well as attractive valuations. These advantages have set the stage for the region to capitalise on global investors’ shift away from larger peers like China, particularly given economic woes deepening in the world’s No 2 economy.
“Asean has been ignored for so long,” said John Foo, the founder of Valverde Investment Partners Pte Ltd. “Investors are beginning to wake up to the many alpha opportunities available, from the commodity companies in Indonesia to the stable real estate investment trust market in Singapore to the tech plays in Malaysia, and the export plays in Vietnam and numerous recovery plays in Thailand.”
A key source of bullishness about Southeast Asia is the relatively light positioning in the market by foreign funds, who have room to expand their allocations. Valuations also look attractive, with the MSCI Asean index trading at 13.6 times its 12-month forward earnings estimate. That’s compared to a five-year average of 14.7 times.
Recent positive policy catalysts such as Indonesia’s fiscal easing initiatives and measures in Thailand and Malaysia that favour stock ownership are helping too, according to Kenneth Tang, a portfolio manager at the Nikko AM Shenton Thrift Fund. The countries also benefit strongly from high representation of interest-rate sensitive and high-yield sectors from banks to property developers, he added.
Those factors have boosted Asean’s strength, with the index outperforming the MSCI Asia Pacific Index by about 14 percentage points since the start of July.
Brokerages are taking note. Goldman Sachs Group Inc upgraded Thailand to 'market weight' from 'underweight' this month on expectations that the country’s new state-controlled Vayupak Fund will provide “both sentimental and liquidity support, attracting foreign capital back to the market”, the bank’s strategist Timothy Moe wrote in a note. Last month, Nomura Holdings Ltd upgraded Malaysian and Indonesian stocks.
“If interest rate cuts are here to stay and there’s no recession, this rally can extend towards the end of 2025,” said Chun Hong Lee, a portfolio manager at Principal Asset Management Bhd.
Uploaded by Tham Yek Lee