Analysis – Southeast Asian Equities Shine as Commodities Rise on Ukrainian Crisis | Investment news

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By Alun John and Anshuman Daga

HONG KONG / SINGAPORE (Reuters) – Southeast Asian stocks are becoming a haven for international investors fleeing the worsening outlook for global equities hoping for sustained strength in the region’s commodity-rich economies.

Driving the renewed interest is a rise in commodity prices which is good news, particularly for major producers Indonesia and Malaysia, along with the poor economic ties between Southeast Asia and the warring nations of Russia and Ukraine.

Conflict-induced supply disruptions and subsequent Western sanctions pushed commodity prices up, with Brent crude, coal, palm oil and nickel reaching multi-year highs.

“Commodity prices are now likely to be higher for longer,” said Jerry Goh, an Asian equity investment manager at fund house abrdn.

“We expect Malaysia and Indonesia to continue to enjoy trade surpluses, which should boost government revenues and encourage consumer spending.”

Foreign flows into stocks in Indonesia, the largest economy in Southeast Asia, climbed to $ 1.2 billion in February, according to Reuters data, the highest since April 2019, after net outflows for much of 2019. and 2020 and only small inflows in 2021.

February flows into Thai bonds were the highest since at least 2008 and the Philippines also saw inflows. Conversely, India and Taiwan, dear investors in 2021, both experienced outflows in February.

Indonesia is the world’s largest exporter of palm oil, thermal coal and a major producer of nickel, copper and refined tin, while Malaysia is the world’s second largest producer and exporter of palm.

“As economic activity picks up in these two markets, this should also support a recovery in domestic earnings,” Goh added.

The defensive qualities in the ASEAN grouping of nations could exercise in the coming months, as the Russia-Ukraine conflict escalates, said Kenneth Tang, senior portfolio manager for Asian equities at Nikko Asset Management.

The broadest MSCI global equity index fell 11% year-to-date, but Indonesia, with year-to-date gains of nearly 5%, is the best performing Asian market after the record Jakarta Composite Index last week.

Coal producers Adaro Energy and Bayan Resources hit record highs.

Shares in neighboring Malaysia hit a 10-month high last week, following a 6.3% jump in February.

Thus, Indonesia and Malaysia offer “perfect stagflation hedging” as the only two net exporters of commodities to Asia, excluding Japan, Morgan Stanley economists said.

Abrdn says he appreciates sectors exposed to commodity markets, but also highlighted that low-cost Southeast Asia was well placed to attract more FDI in building supply chains in areas such as electric vehicles and energy storage.

Strong performance in Indonesian markets could bode well for stock prices as its largest tech firm, GoTo, is looking to launch a domestic IPO that could raise at least $ 1 billion in the first half, sources said.

Last year, Indonesian fundraising via IPO rose to the highest level in a decade, fueled by investor interest in tech companies.

Foreign flows into Southeast Asian stocks represent a marked change from previous years, when the COVID-19 pandemic had a devastating impact on life and economic growth in many countries in the region.

The economic outlook is brightening.

Indonesia, the largest economy in Southeast Asia, posted a $ 2 billion budget surplus in January as tax revenues rise.

This has led to a shift in the perception that Malaysia and Indonesia are vulnerable during times of Fed policy tightening, such as now, thanks to a large foreign presence in their bond markets.

Foreign ownership accounted for 28% of Indonesian shares in January, down from 37% in March 2013, according to Nomura. Non-residents now hold only a quarter of the Malaysian public debt. They hold less than a fifth of Indonesian public debt, down from 39% at the end of 2019.

“There is an adage, ‘Sell what you own,’ and what foreign investors currently own in Asia are India, Taiwan and a little bit of Korea,” said Chetan Seth, an Asia-Pacific equity strategist. by Nomura.

“They don’t own much Southeast Asia, so how much can they sell?”

(Reporting by Alun John in Hong Kong and Anshuman Daga in Singapore; Additional reporting by Gaurav Dogra in Bengaluru; Editing by Vidya Ranganathan and Clarence Fernandez)

Copyright 2022 Thomson Reuters.

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