South-East Asia stocks set for bull market on easing virus spread

A woman, wearing a face mask as a preventive measure against the spread of coronavirus, is walks past the Singapore Exchange (SGX) stock exchange building in the central business district area. South-East Asian equities have risen more than 20% from recent lows, tracking global peers, with consumer stocks recovering as the Covid-19 (coronavirus) pandemic shows signs of slowing down. - AFP

SINGAPORE/KUALA LUMPUR: South-East Asian equities have risen more than 20% from recent lows, tracking global peers, with consumer stocks recovering as the Covid-19 (coronavirus) pandemic shows signs of slowing down.

The MSCI Asean Index gained as much as 1.9% on Tuesday, taking its rebound from a March 23 low to 21%.

Gauges of shares in the Philippines, Indonesia and Thailand have all rallied this month to enter technical bull territory as Wuhan, where the outbreak in China started, lifted its lockdown and the pandemic is easing in global hot spots.

This marks an about-turn for South-East Asia, whose shares were some of the worst hit in the sell-off triggered by the virus because of the region’s heavy reliance on trade and tourism with China, as well as its open capital accounts.

The rout was marked by circuit breakers and trading halts in some of its biggest economies, with the Philippines shutting its stock market for two days.

Now, after weeks of selling and billions of dollars in policy stimulus, investors are hunting for bargains and turning their attention to the companies that can survive the public health crisis.

"Optimism now is driven by tapering off of Covid-19 cases in Europe and signs of that happening in parts of the US,” said Daryl Liew, head of portfolio management at Reyl & Cie. in Singapore, adding that there has been short covering as well.

"But as you can see in Asia, the risk of a second wave is a real threat. It means restrictive measures may have to stay in place longer which will hurt the real economy. It’s too early to call a bottom.”

The South-East Asian equity benchmark, which had been in a bear market since 2018, is still 27% off a Jan 17 high.

It began its descent about a month before the S&P 500 and the Euro Stoxx 50 indexes. The US and Europe measures also entered bull markets in recent days, while the MSCI Asia Pacific Index is less than 3% away from it.

The recent outperformance could be "explained in a large part due to their underperformance in March,” said Tai Hui, chief Asia market strategist at JPMorgan Asset Management.

"Some of these markets, such as the Philippines, were trading at quite a steep discount and hence attracting some bargain hunters to participate.”

Overseas investors, however, have been slow on the uptake, pulling money from Southeast Asian equity funds this year. Thai shares have recorded the most withdrawals from foreigners this month -- at almost $620 million. Philippine stocks saw 19 straight days of foreign outflows.

In Malaysia, where there have been more than 4,800 coronavirus infections, the FTSE Bursa Malaysia KLCI Index is still about 8% away from clinching the 20% upswing, while the Singapore benchmark has gained 18% from its recent low.

The Vietnamese stock gauge has rebounded 16% but remains in bear territory since a massive slide in 2018.

"What is more interesting is that these markets are performing well at a time when the U.S. dollar is still fairly strong,” Hui said. - Bloomberg
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