HONG KONG • South-east Asian stocks, hit particularly hard by the shutdown of tourism and other service industries, are making a comeback as optimism grows over a return to travel.
The MSCI Asean Index has surged 14 per cent in an eight-day winning streak, almost double the 7.4 per cent rally in the MSCI Asia-Pacific Index over the same period. At its highest since March, the gauge of South-east Asian shares has narrowed the gap with its peers but still remains down about 14 per cent for the year. The broader Asian gauge is up 8 per cent.
Investors are jumping on South-east Asian stocks as part of a global rotation into value and out of growth sectors after positive results from a Pfizer vaccine boosted sentiment.
Governments across the region are looking to ease social distancing measures, with Singapore and Hong Kong announcing on Wednesday that they will start an air travel bubble, replacing quarantine with Covid-19 testing from Nov 22.
"The vaccine news opens up sectors under great stress like airlines and hotels," Mr Leon Goldfeld, head of multi-asset solutions for the Asia-Pacific at JPMorgan Asset Management, said in a press briefing. "What we've seen is a massive rotation in the market from growth to value."
The value rotation will likely last three to six months and has "some room to run", he added.
The "stars are aligning" for a resurgence in South-east Asian stocks, amid signs that earnings have bottomed out, according to Mr Devendra Joshi, a strategist at HSBC Holdings. The bank is overweight on shares from Indonesia, Singapore and Thailand.
"Activity in Asean has picked up considerably since the trough, as indicated by manufacturing PMIs (purchasing managers' indexes) and mobility," Mr Joshi wrote in a note on Tuesday.
With about a third of firms having reported earnings so far, 60 per cent have met or exceeded expectations, a higher proportion than the first two quarters of the year, he said.
The Thai market, hit especially hard due to the downturn in tourism and widespread protests over the monarchy, is starting to draw interest from overseas investors again.
Foreign buyers piled a net of more than US$600 million (S$809 million) into Thai stocks on Tuesday, the biggest purchase in 10 years, as the benchmark SET Index jumped the most since April.
Credit Suisse Group analysts have raised their rating for Thai stocks to overweight, thanks to progress on the coronavirus vaccine.
For UBS Group strategist Niall MacLeod, South-east Asian stocks are finally reacting to the potential for a vaccine, after missing out on past rallies on the theme. That increases the possibility that, at the very least, they can outperform larger peers like China.
"It might still be too early to call for a rotation where South-east Asia leads the overall market," he wrote in a note with colleagues on Wednesday. "Nevertheless, the relative valuation and outperformance year-to-date suggest China and Taiwan could underperform the region on better vaccine news and broader opening up of the global economy."
BLOOMBERG
