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MSCI Southeast Asia Index

The capitalisation of the MSCI Southeast Asia index, which includes many of Asia’s other fast-growing economies, is just 2 per cent of that of the global index. But it has outperformed its global peer by a resounding three times over the past three years.  As the equities are now looking expensive, profit margins are starting to peak and individual countries have their own particular challenges,moving into 2013 the ‘rally’ is unlikely to continue.

Now, let’s examine the individual countries’ challenges:

  1. The Philippines – its benchmark index trades on 18X forward earnings.  It is the highest in a decade.  However, the country’s economy may stall from here as strong domestic demand and a low base will push up inflation in 2013, which would argue for a reversal of Manila’s relatively loose monetary policy.
  2. Indonesia – weak prices for soft commodities are pressuring its current account and accentuating the risks of currency instability and capital outflows.  The Jakarta market has underperformed; that could well continue in 2013.
  3. Malaysia – was the largest market in Asia after Hong Kong for initial public offerings in 2012. Felda, a palm plantation, raised $3bn in a listing in June; even so, cornerstone investors took the largest chunk. Its economy is also facing a fall in soft commodity prices. And Malaysian consumer debt remains the highest in the region at more than three quarters of economic output. So economic growth is sensitive to any future rate rises.
  4. Thailand – it is suffering from falling exports and a consumption story boosted only by temporary subsidies.
  5. Singapore – looks cheap, but its openness to foreign investment makes it vulnerable to the global economy.

The chart below compares the performance of MSCI South East Asia, MSCI Asia Ex Japan, MSCI Emerging Markets, S&P and MSCI Europe from 2007-12-24 to 2012-12-24.

Reference:  Financial Times, Lex, 2012-12-23, “SE Asian Economies – Size Matters”

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