South-east Asia stocks poised for bull market as global funds pile in

SINGAPORE (BLOOMBERG) - South-east 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 almost 20 per cent from a closing low on Jan 21. Leading the way is Philippine shares, also on the brink of entering a bull market, considered by many to be a 20 per cent rebound based on closing prices.

South-east 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 is a reversal of fortunes from 2015 when the region's equity gauge plunged 21 per cent as prospects for higher US rates spurred capital outflows.

"The risk-on trade is back on. This is a short term rebound after a tumultuous fourth quarter," said Mr Geoffrey Ng, director at Fortress Capital Asset Management Sdn in Kuala Lumpur, which oversees about US$238 million (S$322 million). "This is fueled partly by greater certainties of the path of US interest rates."

South-east Asian assets have stabilised after Federal Reserve Chair Janet Yellen signaled in early February policy makers will not 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 per cent to 7,301.16 at 1.05pm in Manila, taking gains from its closing low reached on Jan 21 to 20 per cent, on speculation that spending for the presidential vote in May will boost company earnings.

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

Overseas investors have bought US$151.2 million of Philippine shares this month, set to end 11 months of withdrawals that saw them pull a record US$2.39 billion. About US$160 million of global funds have flowed into Indonesian equities during the same period, while US$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 5.7 per cent this year, while Indonesia's rupiah has gained 5.2 per cent and the Thai baht has risen 3.5 per cent.

The region has been rallying while other markets have struggled to dig themselves out of losses. The MSCI South East Asia Index is up 9.1 per cent for the year, while the MSCI All Country World Index has dropped 0.8 per cent. The Standard & Poor's 500 Index is down 0.2 per cent, even after a 12 per cent rally from a February low.

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 Prayut Chan-o-cha accelerated budget spending to help everyone from farmers to small businesses amid falling exports. Indonesia, South-east Asia's largest economy, cut its main interest rate for the third straight month in March to boost growth.

Goldman Sachs Group has forecast Asean, or the Association of South-east Asian Nations, will record economic growth of 4.5 per cent this year, compared with expansions of 2.1 per cent in the US, 1.4 per cent in the Euro area, and 0.7 per cent in Japan.