Traders find haven from global stock gloom in South-east Asia

SINGAPORE – As global equities struggle after the Federal Reserve’s latest hawkish rhetoric, South-east Asia’s growth outlook is making the region an investor favourite.

Man Group, BNP Paribas and Credit Suisse Group are among those touting the region’s resilience after commentary at Jackson Hole reignited a worldwide sell-off over the past week.

The benchmark MSCI Asean Index has fared much better than the broader MSCI Asia Pacific Index, and is set to outperform a gauge of global stocks for a third straight quarter.

The growing bullish chorus points to a reopening of South-east Asia that is bringing back a swarm of tourists, as well as booming domestic demand that is helping shield it from a global slump.

And with the tailwind from commodity exports, the region’s earnings outlook seems more promising versus most markets squeezed by slowing consumption and rising costs. “We have a lot of pent-up demand here,” said Mr Joshua Crabb, head of Asia-Pacific equities at Robeco Hong Kong.

“Foreign direct investment is happening, opening up is continuing to happen and the long-term structural story is quite positive.”

Most of the region’s biggest economies are expected to grow at least 5 per cent this year, according to estimates compiled by Bloomberg, with the scrapping of pandemic-era restrictions offering a key boost.

Malaysia more than doubled its annual target for tourists following an uptick in recent months, while Thailand expects to reap in US$11 billion (S$15 billion) from a surge in foreign visitors in the second half of the year.

“We are remaining focused on India and South-east Asia markets,” BNP Paribas head of Asia-Pacific equity research Manishi Raychaudhuri said on Bloomberg TV. “These are not only growing in terms of economic revival post-Covid-19, but also strongly growing in terms of the earnings estimates.”

Such views are echoed by Credit Suisse strategists, who in a note last week said they remain overweight on Asean, with their favourite market being Thailand.

The composition of South-east Asia’s equity benchmarks – low tech weighting and relatively high ratio of bank shares – is also favourable in a rising global interest-rate environment.

To be sure, the region cannot be immune to global risks arising from a supercharged dollar hurting corporate profits and the Fed’s tightening driving away capital from emerging markets. Many market watchers say, though, that this time will be different from the foreign-fund exodus seen in 2013 given the economies’ stronger fundamentals.

Global funds poured a net US$2.4 billion into the region excluding Singapore quarter to date, with Thailand accounting for a chunk, Bloomberg-compiled data showed.

The region’s governments “haven’t used their fiscal largess, they haven’t used monetary largess, real rates are still reasonable compared with a lot of other places”, said Mr Crabb at Robeco. “We have seen how earnings coming out of places like Indonesia have been very resilient.” BLOOMBERG