Rally in SE Asia's stock markets likely to cool off
Monday, 19 April 2010
BANGKOK, Apr 18 (Reuters): A rally in Southeast Asian stock markets, including a record high in Indonesia and a surge elsewhere in the region to two-year peaks, may be about to cool off even if the economic recovery continues.
Foreign investors enthusiasm for the region has reflected the eagerness of global funds to buy riskier assets, pushing up valuations. Fund managers and analysts say they are rotating money to bonds and underpriced stock markets.
Indonesia is the most expensive bourse in the region, trading at 3.4 times price-to-book. Price-to-earnings ratios are fairly similar for indexes in the region, so analysts are looking to the price-to-book ratios to reveal some of the differences in valuation.
Indonesia's price-to-book is well above All Asia's 2.0, Singapore's 1.7, Malaysia's 1.9, the Philippines' 2.1 and Thailand's 1.7, data shows.
In Thailand, the deadliest political protests in almost two decades have started to cool foreign investors enthusiasm for the stock market. Foreign investors have cashed out a net 5.3 billion baht ($164.5 million) of Thai equities in the past three sessions, reducing their net purchases since Feb 22 to $1.66 billion from $1.8 billion, exchange data showed.
Indonesian shares scaled a record high early this month as investors became increasingly confident in the outlook for Southeast Asia's biggest economy, with strong buying interest in banks such as Bank Central Asia.
''In Southeast Asia, Indonesia seems heavily overbought and the high valuations seen at the moment seem out of alignment with growth expectations,'' said Tey Tze Ming, a strategist at Saxo Capital Markets. ''We recommend staying extremely underweight.''
In Thailand, the central bank seems unlikely to start raising interest rates from a record low next week after fatal clashes last weekend between security forces and anti-government demonstrators that could hurt tourism and crimp economic growth.
''After over 18 months, we are closing our bullish recommendation on Thai equities,'' said Sean Darby, a strategist at Nomura International.
''While the economy is turning around and earnings results have surprised on the upside, we would lock in gains and recycle the proceeds into both Malaysia and Singapore,'' he said.
Investors agree.
Earlier this month, the Thai index was up 12 per cent from the end of 2009. Now most of those gains have been wiped out.
A sell-off Monday, before the three-day Thai New Year holiday, lopped 3.64 per cent off the main index and it dropped more than 3 per cent Friday, leaving it little changed from the end of 2009.
The Philippines, playing catch-up with the region as its economy has improved, reached a two-year high this week. But the rally may stutter in coming months.
''Uncertainty about the election has kept foreign investors underweight. However, the economy has generally performed above expectations and the market remains attractively priced,'' said Scott Davidson, Research Director at Absolute Asia Asset Management Limited in Singapore.
''Assuming that the elections go smoothly, we would expect to see more inflows into the Philippines.''
Foreign investors enthusiasm for the region has reflected the eagerness of global funds to buy riskier assets, pushing up valuations. Fund managers and analysts say they are rotating money to bonds and underpriced stock markets.
Indonesia is the most expensive bourse in the region, trading at 3.4 times price-to-book. Price-to-earnings ratios are fairly similar for indexes in the region, so analysts are looking to the price-to-book ratios to reveal some of the differences in valuation.
Indonesia's price-to-book is well above All Asia's 2.0, Singapore's 1.7, Malaysia's 1.9, the Philippines' 2.1 and Thailand's 1.7, data shows.
In Thailand, the deadliest political protests in almost two decades have started to cool foreign investors enthusiasm for the stock market. Foreign investors have cashed out a net 5.3 billion baht ($164.5 million) of Thai equities in the past three sessions, reducing their net purchases since Feb 22 to $1.66 billion from $1.8 billion, exchange data showed.
Indonesian shares scaled a record high early this month as investors became increasingly confident in the outlook for Southeast Asia's biggest economy, with strong buying interest in banks such as Bank Central Asia.
''In Southeast Asia, Indonesia seems heavily overbought and the high valuations seen at the moment seem out of alignment with growth expectations,'' said Tey Tze Ming, a strategist at Saxo Capital Markets. ''We recommend staying extremely underweight.''
In Thailand, the central bank seems unlikely to start raising interest rates from a record low next week after fatal clashes last weekend between security forces and anti-government demonstrators that could hurt tourism and crimp economic growth.
''After over 18 months, we are closing our bullish recommendation on Thai equities,'' said Sean Darby, a strategist at Nomura International.
''While the economy is turning around and earnings results have surprised on the upside, we would lock in gains and recycle the proceeds into both Malaysia and Singapore,'' he said.
Investors agree.
Earlier this month, the Thai index was up 12 per cent from the end of 2009. Now most of those gains have been wiped out.
A sell-off Monday, before the three-day Thai New Year holiday, lopped 3.64 per cent off the main index and it dropped more than 3 per cent Friday, leaving it little changed from the end of 2009.
The Philippines, playing catch-up with the region as its economy has improved, reached a two-year high this week. But the rally may stutter in coming months.
''Uncertainty about the election has kept foreign investors underweight. However, the economy has generally performed above expectations and the market remains attractively priced,'' said Scott Davidson, Research Director at Absolute Asia Asset Management Limited in Singapore.
''Assuming that the elections go smoothly, we would expect to see more inflows into the Philippines.''