Preheating in advance? The rebound of Southeast Asian stock markets at the end of the year brings new hope for a significant rise next year.
The recent rebound in Southeast Asian stock markets is expected to continue, with the Federal Reserve's policy shift serving as another catalyst. The rapid shift of supply chains to Southeast Asia and the recovery of the tourism industry have provided better prospects for corporate profitability. Local governments are also implementing measures to support domestic consumption. The valuations of ASEAN stock markets appear more attractive than they have been in the long term, with forward yields lower than the five-year average. Indonesia and Vietnam are seen as promising. However, unfavorable factors such as a US economic recession and weak external demand still exist. It is expected that most Southeast Asian economies will grow at a faster pace next year than in 2023. JPMorgan Chase has increased its holdings of Thai stocks, partly due to expectations of a recovery in the Thai tourism industry.
Zhitong App has learned that with the improvement of economic prospects, the recent rebound in Southeast Asian stock markets is expected to continue, and the policy shift by the Federal Reserve will serve as another catalyst.
Since Federal Reserve Chairman Powell's speech last week, the MSCI ASEAN Index has risen by more than 3%, outperforming major indices in the Asia-Pacific region and global stock markets. This continues the index's gains since November last year, when disappointing performance was seen for most of this year due to foreign capital outflows and a slowdown in exports in the region.
The potential interest rate cuts by the Federal Reserve next year, coupled with a weaker US dollar, are enhancing the attractiveness of emerging markets. At the same time, the rapid shift of supply chains to Southeast Asia and the recovery of the tourism industry are providing better prospects for corporate profits. Local governments are also implementing measures to support domestic consumption.
Pauline Ng, portfolio manager at J.P. Morgan Asset Management, said, "Overall, valuations in ASEAN appear more attractive than they have been in the long term. Coupled with longer-term structural positives, ASEAN stock markets may provide convincing opportunities for investors."
Currently, the forward price-to-earnings ratio of the region's index is only 12.9 times, lower than the five-year average of 14.9 times. According to compiled data, the trading prices of most markets in the region are lower than their long-term average valuations.
Kenneth Tang, senior portfolio manager at Nikko Asset Management, favors local markets with attractive growth prospects such as Indonesia. It is believed that Indonesia will benefit from progressive government policies and its role in the electric vehicle battery supply chain. Currently, the Jakarta Composite Index in Indonesia is less than 2% away from its historical high. He also sees potential in Vietnam, which has already become a manufacturing powerhouse.
However, this does not mean that the outlook for Southeast Asian stock markets is all bright. Adverse factors, including a possible economic recession in the United States and weak external demand, still loom over the region's export-oriented countries.
According to compiled data, the growth rates of most economies in the region are expected to be higher next year than in 2023. Any unexpected tourist arrival data could boost the Thai stock market, as the tourism industry is a key driver of growth in the country. J.P. Morgan has increased its holdings of Thai stocks, partly due to expectations of a sustained recovery in the Thai tourism industry.
In a report on December 3rd, J.P. Morgan strategists, including Rajiv Batra, wrote that due to seasonal trends, the MSCI ASEAN Index could rise to around 640 points in early 2024.