BlackRock Lured to Asean Stocks as Regional Rally Beats World

  • Asset managers buying back in after 20% third-quarter plunge
  • Region's economies to be among Asia's fastest-growing in 2016

Stocks in Southeast Asia are climbing at the fastest pace in two years relative to global peers as investors from Aberdeen Asset Management Plc to BlackRock Asset Management forage for bargains after a global equity rout slashed valuations.

The MSCI Southeast Asia Index has rebounded 11 percent this month, 5.1 percentage points more than the MSCI All-Country World Index, the widest gap since November 2013. Indonesia’s Jakarta Composite Index has jumped 12 percent since slumping to a two-year low last month, while the benchmark Philippine Stock Exchange Index has rallied 2.9 percent after seven straight months of losses through September.

The revival in investor appetite underscores confidence that the region’s $2.57 trillion economies are well placed to weather a slowdown in China’s export demand after August’s surprise yuan devaluation sent stock markets tumbling. Foreign investors are returning after pulling a record $5.1 billion from Thai, Philippine and Indonesian shares in the three months through September, lured by cheaper valuations and economic growth that’s forecast to outpace the global average in the next two years.

“We are beginning to see selective opportunities in Asean markets after the recent correction,” Andrew Swan, the Hong Kong-based head of Asian equities at BlackRock, which oversees about $4.5 trillion, wrote in an e-mail last week. “Valuations are more attractive now, although not yet at what we would regard as crisis levels.”

The MSCI Southeast Asia Index rose 0.4 percent to 695.18 at 9:47 a.m. in Singapore, poised for its first gain in five days. The MSCI All Country World Index fell 0.1 percent.

The regional measure plunged 20 percent in the third quarter amid concerns the U.S. was edging closer to raising interest rates and a weakening Chinese economy would further curb growth. The Southeast Asia index’s price-to-book ratio fell to a multiple of 1.4 last month, the cheapest relative to the world gauge based on data going back to 2009. 

The Stock Exchange of Thailand Index is trading at 15 times reported earnings, the cheapest in about 20 months, even after rallying 9 percent from an August low. Foreign funds have bought a net $202 million of Thai shares in October after a four-month, $2.9 billion selloff. Vietnam’s VN Index, Asia’s best-performing equity gauge this year with an 8.2 percent gain, is valued at 11.6 times profits, the lowest in Southeast Asia.

“Generally speaking, the numbers are more attractive than they were at the peak of course because the markets have come down,” said Mark Mobius, chairman of the emerging-markets group at Franklin Templeton Investments, who said he’ll add to his “big holding” of Vietnam Dairy Products JSC at the “right price”.

Vietnam Dairy, the country’s biggest stock by market capitalization, climbed to a record high on Thursday after the company said last week it would allow foreign investors to increase their stakes if the government approves the plan.

Fastest-Growing

BlackRock favors regional energy shares, mainly refiners, and is buying financial companies selectively, Swan said. Thailand is Swan’s preferred regional market, especially tourism and energy companies, while signs of accelerating infrastructure spending, easing inflation and “reasonably healthy balance sheets” also make Indonesia attractive, he said.

Aberdeen has been adding to holdings of companies they “know well and where prices have been hit for little underlying fundamental reason,” said Hugh Young, Singapore-based managing director of the asset manager’s Asia business. He declined to name specific stocks.

The Association of Southeast Asian Nations, which include Indonesia and the Philippines, will be home to five of Asia Pacific’s 10 fastest-growing economies in 2016 and 2017, according to economist forecasts compiled by Bloomberg. 

The 10-nation grouping, which has a population of more than 622 million and a combined economic output of $2.57 trillion, recorded 4.4 percent growth in 2014, compared with the global average of 3.4 percent. Regional expansion is forecast by the Asian Development Bank to rebound to 4.6 percent this year and accelerate to 5.1 percent in 2016.

Commodity Slump

Still, most Southeast Asian economies have struggled this year. Indonesia is suffering from a slump in commodity prices that’s slashed agricultural and mining revenue, while Malaysia, Asia’s only major crude exporter, grapples with falling oil prices and a political scandal involving its prime minister. Singapore is battling slowing global trade and the Philippines faces faltering exports and weaker government spending. 

All of the region’s major markets are expected to accelerate in 2016, with the exception of Malaysia. 

“Our least-preferred market is Malaysia, as we think the financial system remains at risk given capital outflows and the deteriorating current-account position,” Swan said. “We are cognizant however that the selloff in the ringgit is quite extended and now appears cheap versus other currencies in the region.”

‘Great’ Potential

Patrick Chang, Singapore-based head of Asian equities at BNP Paribas SA, which has about $564 billion in global assets under management, favors Thailand and Vietnam. Stimulus spending by the military government in Thailand will help boost stocks, and the continued inflow of investment could turn Vietnam into a mini-China in the long term, he said.

While Southeast Asia’s long-term potential remains “great," Swan said, the sustainability of the rebound will depend on the timing and extent of U.S. interest-rate increases and the status of China’s economy.

“A delay in the rate hike by a few months would serve as an overhang on these markets, while a hike with dovish tone or no hike at all would be positive,” Swan said.

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