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Southeast Asian Stocks Crawl Back From Bear Market as Funds Buy

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Louise Jardin
Louise Jardin has been in Asia for twelve years and written for a series of journals and newspapers including the Japan Times in Tokyo, CFO Asia and a number of financial journals across Asia. She now lives in Hong Kong.

Southeast Asian stocks are bouncing back from a bear market, outpacing global indexes as foreign investors pour in amid recovering economies. 

The MSCI South East Asia Index is up 20 percent from a closing low on Jan. 21. Leading the way is Philippine shares, which entered a bull market, considered by many to be a 20 percent rebound based on closing prices. 

Southeast Asian markets are rebounding as accelerating economic growth and calmer currencies attract investors seeking refuge from the volatility rocking markets in China and Japan this year. That’s a reversal of fortunes from 2015 when the region’s equity gauge plunged 21 percent as prospects for higher U.S. rates spurred capital outflows.

“The risk-on trade is back on. This is a short term rebound after a tumultuous fourth quarter,” Geoffrey Ng, director at Fortress Capital Asset Management Sdn. in Kuala Lumpur, which oversees about $238 million, said by phone. “This is fueled partly by greater certainties of the path of U.S. interest rates.”

Southeast Asian assets have stabilized after Federal Reserve Chair Janet Yellen signaled in early February policy makers won’t rush to raise rates amid turbulence in global markets. The Fed earlier this week scaled back expectations for interest-rate increases this year.

The Philippine Stock Exchange Index climbed 1.3 percent to 7,306.74 at the close in Manila, taking gains from its closing low reached on Jan. 21 to 20 percent, on speculation that spending for the presidential vote in May will boost company earnings. Ayala Land Inc. and SM Investments Corp. paced advances. 

“This rally looks sustainable,” said Soo Hai Lim, a Hong Kong-based money manager at Baring Asset Management, which oversees about $41 billion. “In the run up to the elections, Philippine consumer stocks will benefit from increased spending. We remain positive on the Philippines. We’re not really too concerned about the outcome of the elections as long as the new government pushes through with infrastructure projects.”

Other benchmark indexes in Asia are close behind Manila, as the MSCI South East Asia Index recovers from a 31 percent drop from an April peak. Taiwan and Indonesia benchmark indexes are up 19 percent from last year’s lows, while Thailand equities have jumped 13 percent from a January low. The broader MSCI Emerging Markets Index is up 19.7 percent from a January low.

Fund Flows

Overseas investors have bought $151.5 million of Philippine shares this month, set to end 11 months of withdrawals that saw them pull a record $2.39 billion. About $160 million of global funds have flowed into Indonesian equities during the same period, while $329.5 million poured into Thai stocks, data compiled by Bloomberg show.

Currencies have helped lift assets, a turnaround from last year, as they tumbled to follow a repeat of 2013’s taper tantrum when they paced losses in global equity markets after the Fed initially signaled it would reduce monetary stimulus. Malaysia’s ringgit has appreciated 5.9 percent this year, while Indonesia’s rupiah has gained 5.1 percent and the Thai baht has risen 3.5 percent.

The region has been rallying while other markets have struggled to dig themselves out of losses. The MSCI South East Asia Index is up 9.4 percent for the year, while the MSCI All Country World Index has dropped 0.8 percent. The Standard & Poor’s 500 Index is down 0.2 percent, even after a 12 percent rally from a February low.

Yield Chase

“After the selloff in emerging markets, sentiment is relatively calmer,” Bernard Aw, a strategist at IG Asia Pte, said by e-mail. “The chase for yields has probably led some international investors to relook at the assets in Southeast Asia. These countries are less affected by global vicissitudes because of their larger domestic markets, and a lesser reliance on external trade to drive growth.”

Economies in Indonesia and Thailand recorded faster-than-estimated growth in the fourth quarter as stimulus measures by the two governments helped shield the countries from China’s slowdown. Thai Prime Minister Prayuth Chan-Ocha accelerated budget spending to help everyone from farmers to small businesses amid falling exports. Indonesia, Southeast Asia’s largest economy, cut its main interest rate for the third straight month in March to boost growth.

Goldman Sachs Group Inc. has forecast Asean, or the Association of Southeast Asian Nations, will record economic growth of 4.5 percent this year, compared with expansions of 2.1 percent in the U.S., 1.4 percent in the Euro area, and 0.7 percent in Japan.

Filipinos go to the polls on May 9 to elect the replacement of President Benigno Aquino, who is limited to a single six-year term that ends June 30. Aquino boosted growth in Southeast Asia’s fifth-largest economy as he raised taxes and increased infrastructure spending to a record. 

“We like Philippine consumer stocks,” Raymond Kong, Singapore-based fund manager at One Asia Investment Partners, which oversees $2.5 billion of assets, said. “They’re not cheap because investors are paying a premium for growth. The elections will be beneficial for the consumer stocks.”

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