Stocks in the Philippines, Thailand and Indonesia, the best performers worldwide during the past five years, are leading losses in emerging markets this month as foreign outflows approach a record on signs of slowing growth.
The Philippine Stock Exchange Index has tumbled 6.3 percent in November while equity gauges in Thailand and Indonesia lost at least 5.8 percent, after tripling since 2008. Foreigners pulled a combined $1.98 billion from the three markets this month, bringing outflows this year to $5.48 billion, the most on an annual basis since Bloomberg began compiling data in 1999.
Devastation from Typhoon Haiyan in the Philippines, political unrest in Thailand, a tumbling currency in Indonesia and prospects for reduced Federal Reserve stimulus are denting investor confidence in economies that expanded an average 6.5 percent last year, more than twice the pace of global growth. Macquarie Investment Management has shifted to Chinese stocks, while Samsung Asset Management sent money to Malaysia and the Thai state pension fund is investing in Europe and the U.S.
“It’s likely we will stay underweight for the time being” in Southeast Asia, said Samuel Le Cornu, who helps oversee $1 billion, including the Macquarie Asia New Stars Fund, which returned an annualized 37 percent during the past five years. That beat 99 percent of peers tracked by Bloomberg.
Investor pessimism is also reflected in the nations’ debt and currency markets. Indonesia sold less than half its target in a debut domestic dollar debt offering on Nov. 25, while Thailand issued about half its planned amount of government-backed debt at above-market yields. Foreign investors sold a net $1.3 billion of Thai bonds this month, according to Thai Bond Market Association data.
The rupiah has weakened 6.2 percent against the dollar in November to the lowest level since 2009, while the baht has slumped 3.1 percent and the peso dropped 1.2 percent.
Losses in the three countries’ stocks helped spur a 5.8 percent decline in the MSCI South East Asia Index this year through yesterday. The regional gauge, which also includes shares in Singapore and Malaysia, is trailing the MSCI All-Country World Index by 24 percentage points, the most for any year since 2000.
The Southeast Asia measure has dropped 15 percent since May 22, when Fed Chairman Ben S. Bernanke first signaled the U.S. central bank may reduce its bond-buying program if the world’s largest economy strengthens. The Fed will begin paring back stimulus in March, according to the median estimate of 32 economists in a Bloomberg survey conducted Nov. 8.
“Stock markets in Thailand, Indonesia and the Philippines have been the hardest hit since the Fed indicated its intention to taper,” Yingyong Nilasena, the chief investment officer at Thailand’s Government Pension Fund, which oversees more than $19 billion, said by phone on Nov. 22. “That was the turning point.”
The three countries now face growing domestic challenges. Damage from the Nov. 8 typhoon in the Philippines, which left at least 5,500 people dead and displaced 3.5 million, is estimated at $6.5 billion to $14.5 billion, according to catastrophe modeling firm AIR Worldwide.
The local economies of the affected areas in central Philippines, which account for about 12.5 percent of gross domestic product, may contract 8 percent to 10 percent next year, Finance Secretary Cesar Purisima said Nov. 12. Philippine growth slowed to 7 percent in the third quarter from 7.6 percent in the previous period, the government said yesterday.
Thai protesters besieged government ministries this week and urged civil servants to join a push to oust Prime Minister Yingluck Shinawatra, an escalation of rallies that began a month ago against an amnesty proposal for political offenses stretching back to the 2006 coup that ousted her brother Thaksin.
The government cut its 2013 growth forecast to 3 percent this month, from a projection of as much as 4.3 percent in August. The economy expanded at a slower-than-estimated 2.7 percent pace in the quarter ended Sept. 30 amid weakening exports and declining consumption.
“I’ve been selling for tactical reasons,” Alan Richardson, whose Samsung Asean Equity Fund outperformed 96 percent of peers tracked by Bloomberg during the past 12 months, said by phone on Nov. 21. “Social unrest over Thai politics is expected to get worse before it gets better.”
Indonesia’s central bank has raised borrowing costs five times since May to the highest level in more than four years as policy makers seek to support the rupiah, combat inflation and rein in the nation’s current-account deficit. Tighter monetary policy has so far done little to stem declines in the currency, which depreciated beyond 12,000 per dollar yesterday for the first time since March 2009.
“The recent weakening in the rupiah will push imported inflation higher,” Enrico Tanuwidjaja, an economist at Nomura Holdings Inc. in Singapore, said on Nov. 27.
While the International Monetary Fund estimates growth in the three economies will slow to about 5 percent this year, that’s still higher than the Washington-based lender’s 4.5 percent growth projection for all emerging nations.
The Philippine economy may get a boost from post-disaster reconstruction, central bank Governor Amando Tetangco said this month. Indonesia’s inflation rate, which hit a four-year high of 8.79 percent in August, slowed to 8.32 percent in October.
Thai equities have rebounded after past periods of political tension. While the benchmark SET Index lost as much as 13 percent in four months after military leaders sent tanks to block Bangkok’s Government House and said they’d seized control of the capital on Sept. 19, 2006, the gauge recouped its losses by May 2007.
“I am almost always bullish on these markets because, political situations aside, they are where the growth is,” Donald Gimbel, a money manager at Geneva Investment Management of Chicago LLC, which oversees $7 billion, said on Nov. 25. “These are small markets and once money decides they are the right places to go, it doesn’t take much money to move them higher.”
Stocks in the three countries are still more expensive than emerging market peers, even after this month’s declines, according to data compiled by Bloomberg.
The Philippine gauge is valued at 17 times projected earnings for the next twelve months, while Indonesia has a multiple of 13 and Thailand trades at 12 times. That compares with 11 for the MSCI Emerging Markets Index and 7.8 times for the Hang Seng China Enterprises Index.
Thailand’s pension fund is investing in developed markets, Yingyong said. The Standard & Poor’s 500 Index climbed to a record on Nov. 27 as data showed U.S. jobless claims fell while consumer sentiment exceeded estimates. Japan’s Nikkei 225 Stock Average closed at the highest level since 2007 yesterday, while the Stoxx Europe 600 Index touched a five-year high.
Thailand’s growth should “remain sluggish for the near future,” Yingyong said. “We are investing more in overseas equities than domestic stocks.”