Indonesian stocks are among the top picks for JPMorgan Asset Management and Goldman Sachs for 2022. In this April 2019 photo, a statue of a bull stands in the lobby of the Indonesia Stock Exchange ( IDX) in Jakarta, Indonesia.
Dimas Ardian | Bloomberg via Getty Images
Geopolitical tensions around the world are on the rise, but Southeast Asian markets can offer relative safety for investors, according to leading investment banks.
As we head into the next quarter of 2022, CNBC asked analysts from Goldman Sachs and JPMorgan Asset Management to see Southeast Asia as their top pick.
Southeast Asian stocks have underperformed and “was largely ignored by global investors for a decade,” said Timothy Moe, chief equity strategist for Asia Pacific at Goldman. .
Indonesia is a top pick in Southeast Asia for even Wall Street banks.
Indonesia: Banking and Commodity Development
“In Indonesia, we are structurally positive towards banks as the majority of the population is still unbanked or underbanked. We are currently in a leading position in the private sector and also in banks. state-owned banks because they have actively promoted digital adoption to accelerate financial penetration,” said Desmond Loh, a portfolio manager at JPMorgan Asset Management.
Strong commodity prices also benefit export earnings in Indonesia as well as the country’s trade balance, and that is set to support Indonesian Rupiah as well as short-term growth prospects in Indonesia, he said.
Global commodity prices have been on a rollercoaster ride since the war in Ukraine broke out following the Russian invasion in late February. Russia is a major oil producer while Ukraine is a major exporter of other commodities such as wheat and corn.
As of Monday morning in Asia, international benchmarks Brent Crude Oil Futures has grown more than 30% so far this year.
Vietnam and Singapore
JPMorgan Asset Management also likes Vietnam, which Loh has called a “star performer of the past few years” in terms of economic resilience and growth. He added, Vietnam is one of the few economies globally that has experienced positive economic growth during the pandemic.
“To capitalize on the growth, we place positions in high-quality consumer banks and proxies,” he said, without naming specific stocks.
Meanwhile, Singapore is another Southeast Asian country favored by Goldman Sachs.
There are three main reasons why investment banks prefer Indonesia as well as Singapore, said Moe.
- Improving growth and economic dynamics from a region that is recovering late from Covid-related setbacks.
- A banking sector has a large share of stock indexes and has benefited from a shift to tighter monetary policy and rising interest rates.
- The “gradual emergence” of digital economy companies is being included in the indices of Indonesia and Singapore.
From Indonesia Jakarta Composite has gained more than 7% this year, while Vietnam’s VN Index is up about 1% in the same period. From Singapore Straits Times Index increased by more than 9%.
Meanwhile, MSCI’s broadest index of Asia-Pacific shares outside Japan fell 6%.
On Wall Street, S&P 500 down 4.6% so far this year, while the pan-European market Stoxx 600 fell by about 6%.
Investors have in recent weeks grappled with a range of concerns, from a spike in commodity prices caused by Russia’s invasion of Ukraine to rising interest rate environment like major central banks like the United States Federal Reserve find ways to fight inflation.
Shelter from geopolitical tensions
According to Loh, Southeast Asia is “relatively isolated” from rising geopolitical tensions in Europe, as Russia and Ukraine account for less than 1% of the region’s exports.
He mentioned 10 member countries of the Association of Southeast Asian Nations: “Escalation in geopolitical risks drives commodity prices up in the short term to underpin the strength of export markets. goods of ASEAN.
No ‘outflow out of flow’ is expected
Global investors have repositioned over the past few weeks in anticipation of more positive moves ahead of a Federal Reserve tightening, but analysts say the impact on Southeast Asia will relatively smaller than before.
In March, the Federal Reserve interest rate hike for the first time since 2018and Fed Chairman Jerome Powell later pledged take tough action on “too high” inflation.
The prospect of more Fed rate hikes has raised concerns about capital outflows and currency devaluation in Southeast Asia’s emerging markets, a phenomenon seen in 2013 during the “angry fury”. ” saw a spike in bond yields after the Fed hinted asset purchases could drop. .
“We do not expect an exodus of outflow [from ASEAN] as we saw in the rage last time,” Loh said, explaining that country-level balance sheets in Southeast Asia are “generally much healthier” than they were a decade ago.
Most of Southeast Asia’s central banks, with Singapore’s exception, has not yet tightened monetary policy. That is partly because inflation is relatively less severe in the region than in developed economies in the West.
According to Moe, Southeast Asian economies are also more resilient today than in past cycles, who cited external balances in better shape as well as currencies. attractively priced.
