A floating market in Damnoen Saduak, Thailand. Southeast Asia is looking attractive to investors as countries move past the pandemic.
Eduardo Leal/Bloomberg
Not all the world news is bad these days. Southeast Asia, a dynamic growth belt that sprawls from Malaysia to the Philippines, is ditching pandemic restrictions at last, promising an economic rebound for 650 million or so citizens.
Australian tourists returned to the Indonesian paradise of Bali, Vietnam dropped quarantine for foreign visitors, and Singapore greenlighted large gatherings—among other developments from the past few weeks. “Except for China, the whole region is just living with Covid,” says Rahul Chadha, chief investment officer for Asia at Mirae Asset Global Investments.
That should accelerate growth, which was already revving in the second half of 2021, despite rising prices for commodities and food inflation. Regional giant Indonesia is looking for gross domestic product expansion above 5% for 2022. The Philippines, No. 2 by population, could hit 7%. Investors have two broad choices for playing this revival: consumer companies and tourism. Jerry Goh, a Singapore-based investment manager at asset manager abrdn, is betting on the consumer, particularly in Indonesia, which thanks to its coal and nickel riches is a net commodities exporter.
The iShares MSCI Indonesia exchange-traded fund (ticker: EIDO) has already advanced 9% this year, while global emerging markets lost 7%.
Goh sees more gains to come in financial stocks such as Bank Negara Indonesia (BBNI.Indonesia). He’s also high on the nation’s top mall operator, Pakuwon Jati (PWON.Indonesia), and motor vehicle distributor Astra International (ASII.Indonesia), whose product line ranges from motorcycles to heavy equipment.
With a third of Indonesia’s 280 million people unbanked, a battle is raging for dominance in digital finance and innovations like “buy now, pay later,” notes Angus Mackintosh, founder of Jakarta-based CrossASEAN Research. Bank Central Asia (BBCA.Indonesia), the country’s biggest, is defending turf from online upstarts like Bank Jago (ARTO.Indonesia), whose shares have climbed by half over the past year. Mirae’s Chadha is more focused on beaten-down tourism stocks. “People everywhere want to get out of their homes,” he reasons. “There’s huge pent-up demand.”
Ground zero for tourist reopening is Thailand, which prepandemic relied on foreign visitors for a fifth of its GDP. Bellwether stocks like Airports of Thailand (AOT.Thailand) and Kasikornbank (Kbank.Thailand) have suffered accordingly. Thai resorts can’t boom again without cooperation from China, which supplied up to 40% of their clientele in better days. Chadha takes Hong Kong’s recent Covid easing, and mainland China’s shift to shorter lockdowns, as signs they could be back later this year. He’s also buying Lemon Tree Hotels (LEMONTRE.India), a popular Indian chain, and China’s own travel platform Trip.com Group (TCOM).
Less optimistic is Louis Lau, director of investments at Brandes Investments. China, locked into its zero-Covid policy, will keep its citizens home until next year. Global inflation will hit Southeast Asian wallets. Indonesia and the Philippines, which have kept interest rates at record lows so far, will both be forced to hike this year, curtailing growth, he predicts. “By and large things are moving in the right direction,” Lau says. “But short-term headwinds are making us cautious.”
He is holding positions in casinos in Malaysia and China’s Macau region, figuring Asians will flock back to the gaming tables at first opportunity. Still, by and large moving in the right direction is better than some other emerging markets out there. We’ll take it for now.
