BANGKOK (BLOOMBERG) - South-east Asian stocks are on a tear this month, outperforming the rest of the region in a rally that is being fuelled by rising commodity prices and economic reopening from the Covid-19 pandemic.
Investors expect further gains this year, with Thailand cited as a key beneficiary from a rebound in tourism and Indonesia a winner thanks to its huge natural resources sector.
While stocks from Tokyo to Seoul and Taipei are all down this month, an index of shares of Asean nations has jumped about 4.5 per cent. As global funds stream back into these equity markets, currencies are also getting a boost, making the Thai baht and Indonesia's rupiah Asia's top performers this month.
"The growth impulse from economic reopening and higher commodity prices should translate to Asean equity outperformance" said Samsung Asset Management (HK) fund manager Alan Richardson.
Of the two, rising commodity prices may have greater impact on comparative stock performance than reopening, according to Mr Richardson.
"Rising vaccinations and endemic policies have laid a path towards sustainable economic growth," said Mr Rajiv Batra, South-east Asia and emerging markets equity strategist at JPMorgan Chase & Co.
South-east Asian equities are likely to maintain their strong rally through this quarter and into the next, he said.
Thailand has seen net equity inflows this month of about US$280 million (S$377.6 million), according to data compiled by Bloomberg.
Inflows to Indonesia stand at US$251 million while Malaysia has received US$81 million, the data shows.
Here is a look at what to watch in some of the region's key equity markets as pandemic curbs are rolled back and prices of natural resources surge:
In Indonesia - an exporter of oil, gas, coal, tin, rubber and palm oil - the Jakarta Composite Index has advanced 4 per cent this month, putting it within reach of the record high set in early 2018.
Indonesia can expect more foreign inflows, particularly into the mining and resources sectors, said Areca Capital fund manager Paul Ng.
"Countries with a large population such as Indonesia will remain a popular investment choice," said Mr Chua Zhu Lian, an investment director at Fortress Capital Asset Management.
Across all of Asean, "retail and consumer stocks, which have not picked up in terms of valuation, should see good upside potential", he said.
Thailand's benchmark SET Index has gained 2.4 per cent this month and is trading near a two-year high as the nation eases travel requirements for vaccinated visitors.
With an announcement this week that visitors from 10 low-risk countries will no longer need to undergo isolation on arrival from Nov 1, tourism-related stocks are surging.
Asia Aviation, which controls the nation's biggest budget airline, is up more than 10 per cent this month while Airports of Thailand, the state-controlled airport operator, has jumped 11 per cent. Bumrungrad Hospital, which earned most of its revenue from overseas patients before the Covid-19 outbreak, has climbed 2.5 per cent.
"Thailand is highly dependent on the tourism industry, so recovery will help a great deal in the consumer and tourism sectors," said Mr Ng.
Vietnam's VN Index has jumped about 4 per cent this month amid slowing virus cases. Investors see any uptick in vaccination rates and reopening of manufacturing plants as triggers for further near-team gains back toward the benchmark's record high set in July.
"As vaccinations ramp up in Vietnam and case numbers taper off we can see a further rebound in economic activities, which should be positive for investor sentiment especially in re-opening themes like modern retail and domestic tourism," said Asia Frontier Capital fund manager Ruchir Desai.
He cited Mobile World Investment Corp, Phu Nhuan Jewellery and Vincom Retail as reopening plays that can benefit over the next few quarters as stores and shopping malls reopen.
The Philippine Stock Exchange Index has rallied 1.7 per cent this month and almost 7 per cent since the government eased restrictions in the capital region in August.
"The prospects of further loosening is fuelling risk-on sentiment and attracting foreign funds," said AP Securities analyst Andrei Soriano, who estimates that the benchmark could climb another 4.7 per cent to as high as 7,400 points this year.
Aside from further reopening, the fourth quarter is a seasonally strong period for consumer spending, and a boost in government spending can be expected with a presidential election next year, Mr Soriano added.
The nation's KLCI Index has jumped more than 4 per cent this month, boosted by the government this week easing travel restrictions in a step towards ultimately reopening all the economy.
With 90 per cent of adults fully vaccinated, travel and leisure stocks are soaring. Casino operator Genting Malaysia has risen 6.7 per cent this month while budget airline AirAsia X has rallied 25 per cent.
Palm oil stocks also climbed in conjunction with the rise in prices of the commodity. IOI has jumped about 8.5 per cent so far this month and Sime Darby Plantation is up around 24 per cent.
Meanwhile, elevated energy prices are boosting oil and gas stocks. Hibiscus Petroleum has gained 23 per cent this month while Coastal Contracts has jumped almost 49 per cent.