SINGAPORE: Beaten-down equities in Southeast Asia have become irresistibly cheap, according to analysts at HSBC who recommend investing in Indonesia and across the region in a contrarian note on Monday that forecasted the best returns from laggard Singapore.
On a day when social curbs returned to Jakarta, Europe's biggest bank said a combination of recovering growth, low interest rates and strong balance sheets made it the right time to buy stocks in some of the world's worst performing markets.
"At the beginning of pandemic, the visibility of these factors was foggy at best, but we think clarity has emerged now and these factors should be supportive for ASEAN equities," strategists Devendra Joshi and Herald van der Linde said in a note.
"We upgrade Indonesia and Thailand to overweight (and) remain overweight on Singapore," they said, calling out Singapore developer Capitaland and Indonesian conglomerate Astra International among the financial, telecom and consumer firms they also recommend in the region.
The call comes as Southeast Asia's equity markets lag the global recovery amid persistent outflows from foreign investors and with many fund managers feeling it is too soon to return - something HSBC views as a positive.
"As activity picks up and the global recovery continues, we think foreign institutional investor flows should come back and support the market," the analysts said.
Their base case is for a gain of 19% from Sept. 9 index levels in Singapore this year and for gains of 18% in Indonesia and Thailand, with "best case" gains of between 36% and 40%.
They turned cautious on the Philippines where a lack of fiscal spending power could delay recovery and neutral on Malaysia since it has not performed as poorly as some neighbours.
Reuters also reported that Asian bonds recorded a third straight month of net foreign inflows in July, but buying slowed due to an escalation in Sino-U.S. tensions and the worsening pandemic situation in some areas.
Foreigners purchased a net $489 million worth of Asian government and corporate local currency bonds last month compared with $3.97 billion in July, data from regional banks and bond market associations in Indonesia, Malaysia, Thailand, South Korea and India showed.
Khoon Goh, head of Asia Research at ANZ, said the slowdown was due to worsening U.S.-China tensions, with the U.S. imposing technology sanctions on Chinese telecommunications giant Huawei.
But he remained constructive on portfolio flows in the near-term.
"True, the overall growth outturn over Q2 was worse than expected. But investors’ focus has shifted to the pace of recovery now," he said.
In August, South Korean bonds received a net $839 million of foreign money, which was the eight successive monthly inflow this year, while Malaysian bonds attracted a net $715 million.
On the other hand, foreigners sold a net $264 million worth of Indonesian bonds, on worries over its fiscal deficit and ailing economy.
This month, Indonesian bonds have fallen further on concerns about new lockdown measures and a parliamentary panel's recommendations for changes to the central bank law, which could reduce the central bank's independence.
At the end of August, foreign holdings in Indonesia's local currency government debt were down to 28.24%, the lowest since August 2010.
Overseas investors also sold a net $449 million in Indian bonds, which was the sixth successive month of net sales this year.
The world's second-most populous country lags only the United States globally in overall number of infections, but it has been reporting more daily cases than the United States since mid-August.
Thai bonds also witnessed a net $351 million worth of foreign outflows last month.
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