STOCK markets in South-East Asia are expected to generate more excitement in the foreign investment community in the immediate future, but risk a major reversal if promises of reform and change are not fulfilled.
“People should be structurally overweight, and they should have an Asean weighting in their Asian portfolio,'' said CLSA Asia-Pacific Markets equity strategist Christopher Wood.
Speaking to the media in Kuala Lumpur yesterday, Wood said there was a lot of promise for the high beta – or more volatile – markets such as those in Indonesia, Thailand and the Philippines. The promise of structural change and major infrastructure spending was driving interest in those markets, he said.
“Indonesia is the high beta story, and the elections went on as well as anyone could expect. The macro picture has stabilised and the new government seems to be focusing on getting investment back into the country,'' he added.
Wood said the Philippines was the next market that would see tremendous growth.
“Stock market volume is up six-fold from the bottom. My guess is that the Philippines will come back from the dead in the next two years,'' he added.
The Indonesian market, the best performer in the region last year, reached a record high recently, while Thailand burst into life in 2003.
“In the short term, it would not be surprising if there is a correction in the markets that have had a huge run, like Indonesia, but in the longer run, these dips are buying opportunities.
“The big picture is that Asean is coming back, and it is structurally under-represented in all the indices. Global investors have put very little money into this region relative to what they used to own pre-Asian crisis,'' he said.
As for Malaysia and Singapore, Wood classified these markets as the more defensive ones in the region.
“What will make foreigners very excited about Malaysia is if they see real follow-through on the GLC (government-linked companies) restructuring story,'' he said. Failure to deliver on the GLC revamp story, however, could prove painful for the stock market, he warned.
On Asean currencies, which he described as dirt cheap, Wood said that would be another impetus for investors to look at the region more seriously.
“Malaysia is as good an example as anywhere. Malaysia may not be cheap as a stock market but in dollar terms, it is extremely cheap. The one reason I am going to remain overweight on Malaysia is that the long-term concerns of valuations are dramatically compensated by the fact that the ringgit is dramatically cheap,'' he said.
Wood predicted the Singapore dollar would eventually trade below parity against the US currency, the ringgit would double in value and the Thai baht would appreciate to 20 against the US dollar.
“The currencies are going to go up, but not in the short term, because the central banks are resisting. Asean currencies are basically dirt cheap. The long-run trend is inevitable,” he added.
CLSA Indonesia head of research Michael Chambers said more European and US money was coming into the Thai, Indonesian and Philippine markets nowadays.
“It's more than what we have seen for a long time, and global money is coming into Thailand. There is a little looking at Indonesia, but they are too big for the Indonesian market at the moment,'' he said.