JPMorgan, Goldman selects top markets in Southeast Asia for 2022

Indonesia’s shares are among the top picks for JPMorgan Asset Management and Goldman Sachs for 2022. In this image from April 2019, the 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 have been rising, but Southeast Asian markets can offer relative security to investors, according to top investment banks.

As we enter the next quarter of 2022, CNBC analysts from Goldman Sachs and JPMorgan Asset Management asked which Southeast Asian markets were their best choices.

Southeast Asian stocks have underperformed and have been “largely ignored by global investors for a decade,” said Timothy Moe, Goldman’s senior equities strategist at Asia Pacific.

Indonesia is one of the best Southeast Asian choices for both Wall Street banks.

Indonesia: Banking and Commodity Games

“In Indonesia, we are structurally positive towards the banks, as the majority of the population is still without a bank or subbank. We are currently located in the leading private sector and also state-owned banks, as they have proactively pursued digital adoption to accelerate financial penetration, “said Desmond Loh, a portfolio manager at JPMorgan Asset Management.

Strong commodity prices have also benefited export earnings in Indonesia as well as the country’s trade balance, and it is set to support the Indonesian rupiah as well as the short-term growth prospects in Indonesia, he said.

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Global commodity prices have been on a roller coaster ride since the war in Ukraine erupted after Russia’s 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 benchmark brent crude oil futures have risen more than 30% so far this year.

Vietnam and Singapore

JPMorgan Asset Management also likes Vietnam, which Loh described as a “star performer in the last few years” in terms of economic resilience and growth. Vietnam is one of the few economies globally that has experienced positive economic growth throughout the pandemic, he added.

“To capitalize on growth, we are positioned in high-quality consumer proxies and banks,” he said without mentioning specific stocks.

Meanwhile, Singapore is the second Southeast Asian that Goldman Sachs likes.

There are three main reasons why the investment bank likes Indonesia as well as Singapore, Moe said.

  1. Improving the economic and growth momentum of a region that is recovering late after Covid-related setbacks.
  2. A banking sector that is heavily weighted in stock indices and is set to benefit from a shift to tighter monetary policy and rising interest rates.
  3. The “gradual emergence” of companies in the digital economy, which is included in the indices of Indonesia and Singapore.

Indonesia’s Jakarta Composite has risen more than 7% this year, while Vietnam’s UN index has risen about 1% over the same period. Singapore’s Straits Times index has risen more than 9%.

In comparison, MSCI’s broadest index of Asia-Pacific equities outside Japan has fallen 6%.

On Wall Street, the S&P 500 has fallen 4.6% so far this year, while the pan-European Stoxx 600 has fallen around 6%.

Investors have struggled in recent weeks with a range of concerns, from rising commodity prices triggered by Russia’s invasion of Ukraine to a rising interest rate environment as major central banks such as the US Federal Reserve seek to fight inflation.

Refuge 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.

“Escalating geopolitical risks in the short term provides a tailwind for commodity prices to support the strength of ASEAN’s commodity exporter markets,” he said, referring to the 10 member states of the Association of Southeast Asian Nations.

No “emigration of outflows” is expected.

Global investors have repositioned themselves over the past few weeks in anticipation of more aggressive action ahead of the Federal Reserve’s monetary tightening, but analysts expect the impact on Southeast Asia to be relatively smaller compared to the past.

In March, the Federal Reserve raised interest rates for the first time since 2018, and Fed Chairman Jerome Powell subsequently promised to take tough steps against inflation, which is “far too high.”

The prospect of more interest rate hikes ahead of the Fed has given rise to concerns about capital outflows and currency depreciation in Southeast Asia’s emerging markets, a phenomenon seen in 2013 during the “taper tantrum” that caused bond yields to rise after the Fed hinted that asset purchases could settle .

“We do not expect an outflow of outflows [from ASEAN] as we saw in the last outburst of rage, “Loh said, explaining that country-level balances in Southeast Asia” are generally much healthier “now compared to ten years ago.

Most of Southeast Asia’s central banks, with the exception of Singapore, have not yet tightened monetary policy. This is partly due to a regional inflation situation that is relatively less severe compared to developed economies in the West.

The Southeast Asian economies today are also more resilient compared to previous cycles, according to Moe, who cited external balances that are in better shape, as well as currencies that are attractively valued.

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