Cash Outflows Turn World’s Best Stocks to Worst: Southeast Asia

Cash Outflows Turn World’s Best Stocks to Worst: Southeast Asia

Stock markets in Indonesia, the Philippines and Thailand have gone from being the world’s best to among the worst as the threat of reduced bond purchases by the U.S. Federal Reserve sends foreign investors to the exit.

Equity indexes in the three markets have declined more than 3.5 percent since May 22, when Fed Chairman Ben S. Bernanke said policy makers could consider reducing stimulus if the U.S. labor market improves. International money managers pulled a combined $1.6 billion from the Southeast Asian countries in that period, the most since August 2011, data compiled by Bloomberg show.Indonesia, the Philippines and Thailand led a four-year rally in global stocks as buoyant local economies sent corporate profits to records and the Fed’s debt buying spurred investors to seek higher-yielding assets. While Religare Capital Markets and Samsung Asset Management say economic growth in the three nations will remain strong, they anticipate more equity declines as the Fed moves closer to paring back its bond purchases.

“It’s easier to take money off the table in Southeast Asia,” Vincent Fernando, the head of Asean research at Religare in Singapore, said in a phone interview yesterday. “It’s too soon to say there’s a big buying opportunity.” Asean refers to the Association of Southeast Asian Nations.

The Philippine Stock Exchange Index has dropped 9.6 percent since May 22, Thailand’s SET Index sank 4.6 percent and the Jakarta Composite Index (JCI) lost 3.6 percent. That compares with a 2.5 percent retreat in the MSCI All-Country World Index and a 0.5 percent slide in the Standard & Poor’s 500 Index. The Philippine gauge is the fourth-worst performer among 94 primary indexes tracked by Bloomberg from May 22 to yesterday. Thailand’s is 13th worst.

Fed Tapering

The two-week outflows from Thailand, Indonesia and the Philippines compare with $2.3 billion of combined net inflows this year into the three markets. Thailand recorded the most withdrawals among the countries from May 22 through June 3, losing a net $769 million, according to stock exchange data compiled by Bloomberg.

“If the Fed does taper off quantitative easing, you’re likely to see continued weakness in the markets,” said Alan Richardson, the Hong Kong-based money manager whose $149 million Samsung ASEAN Equity Fund outperformed 97 percent of peers tracked by Bloomberg during the past three years.

International investors poured $25 billion into the three markets since Nov. 25, 2008, when the Fed announced its first round of so-called quantitative easing to revive economic growth amid the global financial crisis. The Jakarta index surged 356 percent through May 22 and the SET gauge advanced 322 percent. The Philippine measure rose 310 percent, versus a 116 percent gain in the MSCI emerging index.

‘Take Profit’

“The Fed’s statement on QE is just an excuse by some investors to take profit,” Adithep Vanabriksha, the Bangkok-based chief investment officer for Thailand at Aberdeen Asset Management Plc, which oversees about $322 billion worldwide, said by phone yesterday.

The three economies expanded at an average annual rate of 4.6 percent since 2008 versus 2.9 percent for the global economy, according to International Monetary Fund data, as governments boosted infrastructure spending and rising incomes led to increased consumer purchases. Earnings in the three nations’ benchmark indexes climbed by an average 120 percent since the end of 2008, according to data compiled by Bloomberg.

The countries’ growth prospects haven’t deteriorated and their financial systems are strong enough to weather capital outflows, said Allan Yu, a money manager who helps oversee about $11 billion at Metropolitan Bank & Trust Co. in Manila.

Asian Crisis

Thailand’s foreign exchange reserves have climbed to $169 billion as of April from $26 billion in 1997, when the government’s devaluation of the baht sparked the Asian financial crisis. Indonesia has $107 billion of reserves and the Philippines has $83 billion, data compiled by Bloomberg show.

While the baht and the Philippine peso have both weakened 1.8 percent against the dollar since May 22, the Thai currency is still within 7 percent of a 16-year high in April and the peso is within 4 percent of an almost five-year peak in January. Indonesia’s rupiah has dropped 0.3 percent since May 22.

“Governments in the region have fixed their finances,” said Yu. “Banks and corporates also strengthened their balance sheets. There are no real fundamental reasons why these markets are being sold down this way.”

The Fed is unlikely to announce an imminent reduction in monetary stimulus as policy makers seek to ensure the U.S. is recovering, Yu said. The MSCI All-Country World Index climbed as much as 0.6 percent yesterday after Fed Bank of Atlanta President Dennis Lockhart said the economy isn’t strong enough to justify a reduction in bond buying.

‘Buying Opportunity’

When bond purchases are eventually reduced, America’s economy will be growing fast enough to boost Asian corporate profits through increased trade, Alvin Pattisahusiwa, the director of investment at PT Manulife Aset Manajement Indonesia, said in a phone interview.

“This is a great buying opportunity right now,” Hozefa Topiwalla, the head of Asean research at Morgan Stanley, said by phone from Singapore yesterday. “The fundamental story in Asean is absolutely intact.”

High valuations may drive equity investors out of Southeast Asia and into cheaper markets such as South Korea and Taiwan that will benefit more from a U.S. economic recovery, according to Citigroup Inc.

The Philippine benchmark index trades for 19 times 12-month estimated earnings, while the Jakarta gauge has a multiple of 15 and the SET index is valued at 13 times. That compares with 10 times for the MSCI Emerging Markets Index, 9 for South Korea’s Kospi index and 7 for the Hang Seng China Enterprises Index, according to data compiled by Bloomberg.

“Indonesia, Thailand and the Philippines are the most vulnerable,” Markus Rosgen, Citigroup’s Hong Kong-based chief Asian strategist, wrote in an e-mail yesterday. “The Philippines in particular had become very expensive versus the rest of the region.”

To contact the reporters on this story: Michael Patterson in Hong Kong at; Weiyi Lim in Singapore at; Ian Sayson in Manila at

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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