Re-Opening Trades See Southeast Asia Flip From Worst to Best
(Bloomberg) -- Southeast Asian stocks and currencies have been among the world’s best performers in the past month as rising vaccination levels and falling infection rates helped them power back from a Covid selloff. Money managers are optimistic about further gains.
An index of regional shares jumped more than 5% in August, the most in nine months, while the Thai baht, Malaysian ringgit and Indonesian rupiah were among the four leading emerging-market currencies in the period. JPMorgan Private Bank says pro-growth policies are adding to the upside, while BNP Paribas Wealth Management says low expectations have made valuations attractive.
“As new cases continue to decline and some restrictions are eased, the reopening theme has played out across Southeast Asia,” said Alexander Wolf, head of Asia investment strategy at JPMorgan Private Bank in Hong Kong. “We could see some further upside from additional policy support, and as long as re-opening continues there is room for global investors to close their underweights.”
Wolf said he is particularly positive on Indonesia’s equities and currency as the winding back of restrictions should lead to a solid recovery, while he also likes Singapore due to “remarkable” vaccination progress.
The return to favor of Southeast Asian assets comes as Thailand this week reported its fewest new infections in more than a month and unveiled plans to reopen restaurants, salons and shopping malls. Malaysia is set to ease restrictions in the Klang Valley, the nation’s economic heartland. The baht and ringgit both advanced to two-month highs in early Wednesday trade.
Things were very different a month ago. The MSCI AC Asean Index slipped almost 7% in the three months through July as the spread of the delta variant made the region the world’s worst virus hotspot, while the baht, Philippine peso and ringgit also dropped at least 3% over the period. The region also held the five-lowest slots in Bloomberg’s Covid Resilience Ranking for August.
BNP Paribas Wealth Management says reasons to be positive include the improving outlook for vaccinations and an expected bounceback in cyclical shares, which have a heavy weighting in stock indexes from Asean, the Association of Southeast Asian Nations.
“Malaysia, Philippines, and Thailand have had double-digit earnings surprises so far for the second quarter, so expectations were too low,” said Prashant Bhayani, chief investment officer for Asia at BNP Paribas Wealth in Singapore. “Furthermore, Covid cases are peaking in Thailand and likely in other Asean countries in coming weeks.”
BNP favors Singapore stocks due to the city-state’s approaching re-opening, their attractive dividend yields and valuations, and expectations of positive earnings revisions, he said.
Overseas investors are getting on board. Thai stocks in August attracted the first monthly inflows since December, while foreign funds also boosted holdings of equities in Malaysia, Indonesia and the Philippines over the period, according to data compiled by Bloomberg.
The rally has even filtered through to the region’s junk bonds. High-yield corporate debt issued in dollars returned an average 1.9% for August, outperforming investment-grade debt for the first time since February. Indonesia-related property developers, which have been among the hardest hit by tighter curbs, led the rebound among the region’s low-rated bonds.
Asia Plus Group Holding Pcl, Thailand’s second-biggest stock brokerage, is optimistic the nation is turning the corner after its dependence on tourism saw it get hit particularly hard by the pandemic.
“The business reopening will provide a much-needed support to the struggling Thai economy,” said Pithayain Assavanig, executive director at Asia Plus in Bangkok. “Effective control of the novel coronavirus spread will restore confidence among international investors. We should see return of more foreign inflows.”
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