Foreign capital has flowed into these markets for five consecutive weeks, pushing the MSCI ASEAN index near its highest level since April 2022. The index has outperformed the MSCI Asia-Pacific index by 14 percentage points since early July. Analysts attribute this trend to relatively low foreign investor participation, favorable government policies, and attractive valuations in Southeast Asian markets.
The MSCI ASEAN index is trading at 13.6 times its 12-month forward earnings per share estimate, below its five-year average of 14.7. Indonesia's fiscal easing and stock ownership incentives in Thailand and Malaysia have positively impacted their markets. Additionally, the high proportion of rate-sensitive, high-yield sectors in these markets appeals to foreign investors.
Goldman Sachs has upgraded Thailand to "market weight" from "underweight," while Nomura Holdings raised Malaysia and Indonesia to "overweight" from "neutral." John Foo, founder of Valverde Investment, noted that investors are discovering opportunities across various sectors in ASEAN countries. Analysts predict this regional strength could persist until the end of next year if interest rate cuts continue and a recession is avoided.
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