SE Asia Becomes Stock Haven 15 Years After Crisis

Bloomberg - Southeast Asia (MXSO), the heart of the 1997 currency crisis, produced the best risk-adjusted returns for Asian stocks since global markets started to rebound three years ago, as investors sought a haven from Europe’s debt turmoil. 

Benchmark indexes in the Philippines, Malaysia, Thailand, Indonesia and Singapore returned the most among Asia-Pacific markets worth more than $100 billion in the three years ended July 17, according to the BLOOMBERG RISKLESS RETURN RANKING. All five beat an index of developed markets by risk-adjusted returns, and four came out on top over five years.

“Investors have been focused on and rewarded in the smaller Asean markets because they have been more defensive and domestic-oriented,” said Timothy Moe, a Hong Kong-based strategist at Goldman Sachs Group Inc., referring to the Association of Southeast Asian Nations. “That’s been a better source of growth than what we see in the other more cyclical markets in North Asia. It probably will continue,” he said in a Bloomberg television interview in Hong Kong on June 26.

Southeast Asian governments have bolstered spending on infrastructure and stepped up efforts to spur domestic consumption in a bid to reduce their economies’ reliance on exports. That’s helping to shield the nations from Europe’s debt crisis and a global economic slowdown, which has fueled volatility in the northern Asian markets.

Asean countries shipped 32.9 percent of their exports to the U.S. and European Union in 2010, down from 72.4 percent in 2000, according to data from the organization’s website. China’s exports to the EU and U.S. accounted for a combined 38 percent of total overseas shipments in 2010, according to Bloomberg calculations based on data from the customs bureau.

Volatile North

North Asia had six of the 10 most volatile stock indexes for the three years through July 17, according to Bloomberg’s riskless return ranking. Four of the six are China-related. Malaysia, Singapore, the Philippines and Taiwan had below average volatility readings.

Southeast Asia “is where we find the best quality companies at the most attractive prices,” Alistair Thompson, who helps manage $43 billion at First State Investments in Singapore, said in a phone interview on June 28. “There is more domestic momentum. We won’t change our holding in Southeast Asia. Not until we see better value elsewhere.”

The Philippine Stock Exchange Index (PCOMP) produced the second- highest total return with the fifth-lowest volatility for a risk-adjusted gain of 7.2 percent over the three-year period, the best in the region. Thailand ranked second, helped by the highest total return and average volatility. Singapore was fifth, with a risk-adjusted return of 2.3 percent.

Developed Markets

All five beat the MSCI World Index of developed markets, which returned 2 percent after adjusting for price swings, and all but Singapore did better than the Standard & Poor’s 500 Index, the benchmark for the U.S., which gained a risk-adjusted 2.7 percent.

Indonesia, Malaysia, Thailand and the Philippines also topped the risk-adjusted return ranking over the past five years, with Malaysia posting the lowest volatility and the Philippines having the fourth-lowest price swings.

The risk-adjusted return, which isn’t annualized, is calculated by dividing total return by volatility, or the degree of daily price variation, giving a measure of income per unit of risk. A lower volatility means the price of an asset does not swing dramatically over a specified time period, reducing the potential for unexpected losses.

Outpacing Europe

In the past three years, Southeast Asia’s economies have seen average quarterly growth rates of between 1.8 percent in Thailand and 6 percent in Singapore, compared with average growth of 0.6 percent in the U.S. and a 0.3 percent contraction in the euro region, according to data compiled by Bloomberg.
Five Asean economies -- Indonesia, Thailand, Philippines, Malaysia and Vietnam -- along with China and India will outpace the rest of the world over the next two years, the International Monetary Fund said in an April report. In 2013, the Asean-5 will grow 6.2 percent, compared with 2.4 percent in the U.S., 0.9 percent in the euro area and 1.7 percent in Japan, it said.

Faster economic growth has fueled stock-market gains and valuations. The MSCI South East Asia Index has rallied 13 percent this year, including dividends, and more than doubled since 2008. The MSCI Asia Pacific Index has gained 3.8 percent in 2012 and returned 43 percent since the end of 2008.

Dutch Lady

Companies that have benefited from Southeast Asian governments’ efforts to bolster consumer spending include Big C Supercenter Pcl (BIGC), Thailand’s second-biggest retailer, Robinsons Land Corp., the second-largest Philippine mall operator, and Malaysia’s Dutch Lady Milk Industries Bhd., which have each surged more than 50 percent this year. PT Unilever Indonesia, the unit of the world’s second-biggest consumer-goods company, rose 28 percent in 2012, outperforming the Jakarta Composite (JCI) Index’s 6.8 percent gain. UMW Holdings Bhd. (UMWH), a Malaysian assembler of vehicles for Toyota Motor Corp., has surged 42 percent, the top performer in the FTSE Bursa Malaysia KLCI Index. (FBMKLCI)

MSCI’s Southeast Asian measure is valued at 13.9 times estimated profit and trades at an 18 percent premium to the broader Asian gauge, the widest gap on record according to Bloomberg data going back to October 2009. 

Southeast Asia is unlikely to sustain its outperformance as higher valuations and progress in resolving Europe’s debt crisis will help revive investors’ appetites for riskier assets, Markus Rosgen, Hong Kong-based chief Asian strategist at Citigroup Inc., said in a phone interview on June 26. Investors should start to favor North Asia instead of staying overweight in so- called defensive markets like Southeast Asia, he said.

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