Investment Opportunities In Southeast Asia’s Stock Markets

Opportunities in Asia

Investment Opportunities In Southeast Asia’s Stock Markets

Southeast Asia’s stock markets have been booming this year. Which countries should investors set their sights on?

Published on 9 November 2017

Share prices on Southeast Asia’s stock exchanges have seen a sharp rise this year. Additionally, each of the major countries in the region has registered a significant spike in economic growth. For some nations, this economic expansion is the result of increasing demand from a growing middle class and the positive effect of an expanding Chinese economy. For others, government policies and favourable macroeconomic developments have had a positive impact.

The following table provides a snapshot of how the region’s stock markets have fared in 2017:

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Is this pace of growth justified? More importantly, can share prices keep climbing at the rate that they have increased by in 2017?

Let’s examine how each of the major ASEAN economies is faring:

Singapore

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According to the data released by Singapore’s Ministry of Trade and Industry, the country’s gross domestic product (GDP) expanded by 4.6% in the third quarter of 2017 on a year-on-year basis. The manufacturing sector was a major contributor, growing by 21.6% in July, 19.5% in August, and 14.6% in September.

Even service industries, which form a major part of the Singapore’s economy, did well. Finance, insurance, wholesale and retail trade, and the transportation and storage sectors registered growth in the latest quarter. The only important area that did not do well was construction, which contracted by 6.3%. Singapore’s property market has yet to recover from the decline that started at the end of 2013, but home prices recently recorded their first quarterly increase in four years – indicating that the property market may be poised for further gains.

Does Singapore’s stock market have any steam left? After all, it has already registered a gain of 17% this year. Strong GDP numbers will definitely help the market. But it is unlikely that the growth in manufacturing activity will keep up its current rapid pace.

The stock market may continue to rise, but the rate of increase will probably taper off.

Thailand

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The World Bank estimates that Thailand’s economy will grow by 3.7% this year. In the recent past, agriculture has done particularly well, registering a year-on-year growth of 15.8% in the second quarter of 2017.

Exports are a particularly bright spot, totalling US$215.3 billion in 2016. In 2017, the government expects exports to rise by 8%. Almost a third of the country’s exports are to the US, China, and Japan.

Trade with the US could suffer as President Donald Trump has recently called for a probe into 16 countries that have the largest bilateral trade surpluses with the US, and Thailand is on this list.

Despite this issue, the broad-based growth in the manufacturing sector and the continued rise in tourism will probably ensure that Thailand’s SET Index maintains its upward momentum.

Indonesia

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Indonesia is Southeast Asia’s largest economy, and its GDP has been expanding steadily at about 5% per year since 2014. According to World Bank estimates, this will rise marginally to 5.1% in 2017 and 5.3% by 2018.

The country’s economy could receive a boost by the fact that in May this year, S&P Global Ratings raised Indonesia’s sovereign rating to investment grade. It was the last of the three major rating agencies to upgrade the country.

Commodity exports play an important role in Indonesia’s economy. The country produces about half the world’s supply of palm oil. It also exports vast quantities of other agricultural produce, oil and natural gas, and rubber. However, many of the major companies that have operations in the country prefer to list on the Singapore Exchange.

President Joko Widodo wants to reverse this trend. He has appealed to firms with local operations to list themselves on the Indonesia Stock Exchange. If this happens, the IDX Composite could get a further boost.

Malaysia

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Malaysia’s stock index is a laggard among its Southeast Asian peers. It is the only one that has registered a single-digit increase this year, and the indices of all the other major markets have risen by a much greater margin.

The country’s budget for 2018, which was announced recently, holds some hope for the stock market. The reduction in personal income tax and special payments to civil servants is expected to increase consumer spending.

The construction sector has also received several benefits. The 2018 budget has announced construction projects valued at US$50 billion (RM210 billion), a significant increase from the US$23 billion in last year’s budget. New affordable housing projects have been announced and first-time homebuyers will now find it easier to obtain loans.

Although the KLCI has gained only 6% this year, tech stocks have performed exceedingly well. The Bursa Malaysia Technology Index is up 77% on the back of demand for the electronic products manufactured in the country.

Vietnam

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Vietnam’s VN30 Index has registered an increase of 26% this year – the best in the region. The economy is growing at a healthy 7% clip and exports have climbed by more than 20% in August and September on a year-on-year basis.

However, investing in Vietnam can be challenging. The amount of information available about listed companies is fairly restricted. But this is changing fast.

Vietnam’s stock exchange is getting ready for its largest initial public offering (IPO). Shares in Vincom, a mall operator, will be sold at an amount that could range from US$620 million to US$680 million. The company currently operates 41 malls, and plans to raise this number to 200 by 2021.

International investors are keen to profit from the rapidly expanding economy. Speaking to the Financial Times, Citigroup’s country head for Vietnam, Natasha Ansell, pointed out, “We are seeing record flows from clients wanting to invest in Vietnam and the dialogue with domestic companies wanting to expand has never been busier.”

Philippines

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The PSEi index has gained 22% this year. This sharp increase has been fuelled by the steady GDP growth that the country has been registering year after year. Since 2010, the economy has expanded at an average rate of 6.3%. This year it expects to grow by 6.8%.

The rise in share prices is also partly due to President Duterte’s promise of a “golden age of infrastructure.” The government plans to implement projects of a total value of US$70 billion (P3.6 trillion) in the years from 2018 to 2020. This includes the Mega Manila Subway system, a US$4.4 billion project that is expected to be initiated in 2019.

In September this year, Morgan Stanley upgraded investments in the Philippines to “overweight.” According to the investment banking firm, the country is the top pick among all the Southeast Asian nations.

The bottom line

The economies of all the major countries in Southeast Asia are growing at a reasonably fast pace, and this has contributed to share prices across the region rising rapidly this year. Although this rate of increase may not be sustainable, Southeast Asia’s markets still present an attractive buying opportunity for investors.

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