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As a U.S.-China trade war threatens to wreak collateral damage on the globally-connected North Asian economies, Southeast Asia’s domestically-focused stocks are starting to look more appealing.
“Asean would act as a relative safe haven during a trade war,” said Nader Naeimi, the Sydney-based head of dynamic markets at AMP Capital Investors Ltd., which oversees around $130 billion. More domestic-focused stocks, relatively low exports to the U.S. and a bigger reliance on commodities are the reasons to own Southeast Asian shares at the moment, he said.
Given the diversity within Southeast Asia — the region is home to Asia’s best- and worst-performing emerging-market benchmark indexes this year, investors will need to take a discerning approach to find the best defensive plays.
Thai tourism companies, Singaporean financials and Malaysian auto stocks are some of strategies favored by these asset managers:
Kelvin Tay, regional chief investment officer at UBS Wealth Management, said Thailand looks attractive because the tourism industry is strong and there’s not much of a possibility that will weaken. Spending on several transport infrastructure projects looks set to pick up. “If you put everything together, Thailand is one market that looks pretty interesting”
Thai Banks, Tourism
Steven Kang, senior vice president at Auerbach Grayson, said Thailand will likely do well with its banking sector improvements on better NPL outlook and credit growth expectations, especially on corporate credit.
Frank Benzimra, head of Asian equity strategy at Society Generale, said:
- In a study SocGen published in November, it found that Indonesia, Thailand and Malaysia were the three best-performing Asian markets when the S&P 500 Index was in a bear market. But that alone is not a good enough reason to invest in these markets, as you need to have confidence in their fundamentals
- “Thai market fundamentals have improved. The metric that we use is earnings. Since last summer the domestic earnings component of the Thai market has seen some improving momentum, something linked with banks’ profits. A big current-account surplus, a reason for the strong baht, also helps”
Camilla Goh, executive director of equity research at Bank of Singapore, said:
- “As we’re mindful of the potential impact of unprecedented global central bank unwinding on smaller Asean markets, we are selective in our bottom up stock picks”
- “Our preferred picks include more liquid blue chips with stronger earnings growth prospects,” such as Singapore financials, selected Thai domestic consumption recovery ideas and Malaysia infrastructure development beneficiaries
- “Value plays within the Indonesia property sector, which trade at attractive valuations and have seen moderated investor expectations following the sector’s underperformance to the Indonesia equity market over the past year”
Daniel Morris, senior investment strategist at BNP Paribas Asset Management
- “From a trade and currency point of view — on the assumption the U.S. dollar continues to depreciate against EM currencies — the Indonesian and the Philippine equity markets depend relatively less on U.S. sales”
- The more defensive sectors are those that generate their revenues primarily from domestic demand, such as financials and energy
–With assistance from Livia Yap
©2018 Bloomberg L.P.