Indonesian stocks are among the top picks of JPMorgan Asset Management and Goldman Sachs for 2022. In this April 2019 photo, a bull statue stands in the Indonesia Stock Exchange (IDX) lobby in Jakarta, Indonesia.
Dimas Ardian | Bloomberg via Getty Images
Geopolitical tensions around the world are on the rise, but markets in Southeast Asia could offer relative security to investors, according to major investment banks.
Early in the next quarter of 2022, CNBC asked analysts at Goldman Sachs and JPMorgan Asset Management which Southeast Asian markets were their top picks.
Southeast Asian equities underperformed and were “largely ignored by global investors for a decade,” said Timothy Moe, Goldman’s chief equity strategist for Asia Pacific.
Indonesia is one of Southeast Asia’s top picks for both Wall Street banks.
Indonesia: banking and commodity games
“In Indonesia, we are structurally positive about banks as most of the population is still bank-free or underbanked. We are currently positioned in the major private sector and also in state-owned banks as they have proactively driven digital adoption to accelerate penetration. financial, “said Desmond Loh, portfolio manager at JPMorgan Asset Management.
Strong commodity prices have also been beneficial to Indonesia’s export earnings and the country’s trade balance, and this is set to support the Indonesian rupiah and Indonesia’s near-term growth prospects, he said.
Global commodity prices have gone up on a roller coaster since war broke out in Ukraine 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, crude futures of the international benchmark Brent have risen more than 30% this year.
Vietnam and Singapore
JPMorgan Asset Management also likes Vietnam, which Loh called a “star performer in recent years” in terms of economic resilience and growth. Vietnam is one of the few economies globally to have seen positive economic growth during the pandemic, she added.
“To capitalize on growth, we are positioned in high-quality consumer banks and proxies,” he said, without naming specific stocks.
Meanwhile, Singapore is the other Southeast Asia that Goldman Sachs likes.
There are three main reasons the investment bank likes Indonesia as well as Singapore, Moe said.
- Improving the economic and growth momentum of a region that is belatedly recovering from the setbacks linked to Covid.
- A banking sector heavily weighted in equity indices and destined to benefit from the transition to a more restrictive monetary policy and higher interest rates.
- The “gradual emergence” of companies in the digital economy that are included in the indices of Indonesia and Singapore.
Indonesia’s Jakarta Composite rose more than 7% this year, while Vietnam’s VN index rose about 1% over the same period. Singapore’s Straits Times Index gained over 9%.
By comparison, the MSCI index of Asia Pacific equities outside Japan fell 6%.
On Wall Street, the S&P 500 was down 4.6% this year, while the pan-European Stoxx 600 was down about 6%.
Investors have been grappling with a range of concerns in recent weeks, from the spike in commodity prices triggered by the Russian invasion of Ukraine to a rising interest rate environment as major central banks like the US Federal Reserve seek to fight inflation.
Sheltered from geopolitical tensions
Southeast Asia is “relatively isolated” from rising geopolitical tensions in Europe, as Russia and Ukraine account for less than 1% of regional exports, according to Loh.
“The escalation of geopolitical risks makes the short-term favorable wind for commodity prices to support the strength of ASEAN commodity exporting markets,” he said, referring to the 10 member states of the Association of Southern Nations. -East Asia.
No ‘exodus of outflows’ expected
Global investors have repositioned themselves in recent weeks in anticipation of more aggressive moves ahead of the Federal Reserve’s monetary tightening, but analysts expect the impact on Southeast Asia to be relatively minor than before.
In March, the Federal Reserve raised interest rates for the first time since 2018, and Fed Chairman Jerome Powell subsequently pledged to take tough action against inflation which is “too high”.
The prospect of further rate hikes by the Fed has raised concerns about capital outflows and currency depreciation in Southeast Asian emerging markets, a phenomenon observed in 2013 during the “taper tantrum” that saw bond yields. increase after the Fed hinted that asset purchases could slow down.
“We do not expect an exodus of outflows [from ASEAN] as we saw in the latest whim of tapering, “Loh said, explaining that nationwide budgets in Southeast Asia are” generally much healthier “now than they were a decade ago.
Most central banks in Southeast Asia, with the exception of Singapore, have yet to tighten monetary policy. This is partly due to a relatively less severe regional inflation situation than in the developed economies of the West.
Southeast Asian economies today are also more resilient than in past cycles, according to Moe, who cited external balances that are in better shape and attractively valued currencies.