Year-end Rally In Southeast Asia Stocks Is Raising Hope For 2024

A nascent rebound in Southeast Asia’s stock markets is poised to extend on an improving economic outlook, with the Federal Reserve’s policy shift emerging as another catalyst.

The MSCI Asean Index has risen more than 3% since Fed chair Jerome Powell’s speech last week, beating broader indexes for Asia Pacific and global stocks. That’s extended gains for the Southeast Asian gauge since November, after a disappointing performance for most of the year due to foreign outflows and a slowdown in exports in the region.

Potential cuts in interest rates by the Federal Reserve next year and a weaker dollar are boosting the appeal of emerging markets, while a rapid shift in supply chains to Southeast Asia and a recovery in tourism offer better prospects for earnings. Local governments are also implementing measures to support domestic consumption.

“Overall, Asean valuations are looking more attractive than they have been for a long time,” said Pauline Ng, a portfolio manager at JPMorgan Asset Management. “Coupled with the longer-term structural tailwinds, Asean equities could present compelling opportunities for investors.”

The regional index is trading at just 12.9 times forward earnings ratio, below its five-year average of 14.9 times. Most markets in the region are trading below their long-term average valuations, according to Bloomberg-compiled data.

Kenneth Tang, a senior portfolio manager at Nikko Asset Management, prefers domestic-driven markets with attractive growth prospects such as Indonesia — which is seen to benefit from progressive government policies and its role in the electric vehicle battery supply chain. The Jakarta Composite Index is less than 2% away from reaching a record high. He also favors Vietnam, which has emerged as a manufacturing powerhouse.

That’s not to say all is rosy for Southeast Asian stocks. Headwinds including a possible US recession and softening external demand still loom over the region’s exporting countries.

For now, most economies in the region are expected to grow faster next year compared to 2023, according to data compiled by Bloomberg. Any surprising data on tourist arrivals may also boost Thai equities in particular, given that the sector is a key growth driver for the country. JPMorgan Chase & Co is overweight Thai stocks, partly on expectations of a continued recovery in tourism.

The MSCI Asean Index may rise to a base case level of 640 by early 2024 thanks to seasonality trends, JPMorgan strategists including Rajiv Batra wrote in a note dated Dec 3. – Bloomberg

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