Nomura sees Southeast Asian stocks shedding underdog tag

KUALA LUMPUR: After lagging behind the wider region since 2013’s taper tantrum, Southeast Asian stocks are poised to start outperforming their peers.

That’s the view from Morgan Stanley and Nomura Holdings Inc. in research notes released Thursday and Friday respectively.

A completion of cyclical gains in earnings of technology and commodity companies, only modest dollar strength versus Asian currencies and a small deterioration in sentiment in China will benefit Asean markets over the next few months, according to Japan’s biggest brokerage. 

The “dovish tightening” by the Federal Reserve is supportive of emerging-market currencies in general, providing a reprieve to Southeast Asian equities, the U.S. bank said.

“Structurally, Asean’s economies do appear better placed to deliver on growth than those in North Asia,” Mixo Das, an equity strategist at Nomura in Singapore, wrote in the note. 

“A further rotation into emerging markets from development markets and a long-term compression of the EM vs DM valuation gap should also prove supportive.”

The MSCI Asean index has rallied 9.7 percent this year, trailing a 12 percent advance in the MSCI AC Asia Pacific Excluding Japan Index. 

The Asean gauge fell 22 percent over the four years through the end of 2016, compared with an 8.5 percent decline in the wider Asian measure.

Philippines has the “cheapest” stock market in the region and is expected to outperform in 2017 as earnings outlook improves and clarity on tax reforms could help boost consumption among the middle class, Nomura’s Das said. 

Indonesia is also rated overweight, while Malaysia and Singapore are both seen to underperform. Das has a hold rating on Thailand.

Meanwhile, Morgan Stanley sees the Fed’s stance on U.S. rate increases as supportive of emerging market currencies with Indonesia as the key beneficiary, equity strategists Sean Gardiner and Aarti Shah wrote in the note. 

Malaysia was the next preferred market, followed by Thailand, Singapore and the Philippines. - Bloomberg