South-east Asia stocks' time to shine has finally arrived

The "stars are aligning" for a resurgence in South-east Asian stocks, amid signs that earnings have bottomed out. PHOTO: ST FILE

HONG KONG (BLOOMBERG) - 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 Wednesday 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," Leon Goldfeld, head of multi-asset solutions for Asia Pacific at JPMorgan Asset Management, said in a press briefing Wednesday, speaking about the wider trend. "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.

Asean activity

The "stars are aligning" for a resurgence in South-east Asian stocks, amid signs that earnings have bottomed out, according to Devendra Joshi, a strategist at HSBC Holdings. The bank is overweight shares from Indonesia, Singapore and Thailand.

"Activity in Asean has picked up considerably since the trough, as indicated by manufacturing PMIs and mobility," Mr Joshi wrote in a Tuesday note. With about a third of companies 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.

Thai demand

The Thai market, hit especially hard due to the downturn in tourism and the widespread protests over the monarchy, is starting to attract interest from overseas investors again.

Foreign buyers piled a net 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.

Analysts at Credit Suisse Group have raised their rating for Thai stocks to overweight, thanks to progress on the coronavirus vaccine.

Missed rallies

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 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."

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