The global investment landscape is shifting. With uncertainties surrounding trade policies, investors are increasingly seeking refuge in Southeast Asia, bolstering the region’s stock market prospects for the coming years.
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Analysts predict that potential shifts in global supply chains and foreign direct investment, driven by trade dynamics, could favor Southeast Asia. Economies with less reliance on trade may experience stronger growth, and robust domestic spending in certain markets is anticipated. While the MSCI Asean Index has trailed the broader Asian gauge slightly this year, with most countries experiencing foreign outflows, funds are wagering on a resurgence of investor interest in the coming year. Increased investments in the region’s infrastructure and burgeoning sectors like data centers and green energy are expected to fuel corporate profit growth.
Southeast Asia’s Appeal: Stability and Growth Potential
According to Mohit Mirpuri, an analyst at SGMC Capital Pte., domestically driven markets such as Indonesia and the Philippines offer relative stability, underpinned by strong consumption and adaptable policies, making them attractive havens for investors seeking stability. JPMorgan Chase & Co. estimates suggest the MSCI Asean gauge, which has already gained 7.7% this year, could potentially surge by as much as 14% to 780 by the end of 2025 under a bullish scenario.
Chart showing MSCI Asean Index performance.
Despite net selling by global funds in Malaysian, Philippine, Thai, and Vietnamese stocks this year, and the Federal Reserve’s cautious approach to further interest rate cuts, the outlook for foreign investment remains positive. Vicki Chi, a portfolio manager for Asian equities at Robeco Hong Kong Ltd., believes the region will significantly benefit from the spillover effects of trade tensions. She maintains an overweight position on ASEAN markets, favoring developing ASEAN banks, with their relatively independent net interest margins, and technology-related shares.
Navigating Trade Headwinds and Capitalizing on Opportunities
While export-dependent nations might feel the impact of trade disputes more acutely, ongoing policy reforms in Malaysia and substantial government spending in Vietnam are expected to support growth. Thailand is poised to benefit from a resurgence in tourism and robust domestic demand. Singapore’s high-yielding assets continue to attract investor interest. Kenglin Tan, a portfolio manager at Manulife Investment Management HK Ltd., highlights the growing interest from Chinese companies seeking to invest in ASEAN, not just for manufacturing diversification but also to tap into the region’s burgeoning domestic demand.
Image depicting Southeast Asian cityscape with modern infrastructure.
Southeast Asia’s attractive valuations further enhance its appeal. The MSCI gauge currently trades at 13.5 times forward earnings, below its five-year average of 14.6 times. However, challenges remain. A potential slowdown in global demand could impact the region’s exports, and a stronger dollar resulting from a pause in the Federal Reserve’s easing policy might affect flows into emerging markets.
A Resilient Outlook for Southeast Asia
Despite these headwinds, growth prospects for most Southeast Asian countries remain resilient. Maybank Research forecasts ASEAN GDP to expand by 4.7% next year. Nirgunan Tiruchelvam, head of consumer and internet at Aletheia Capital in Singapore, advocates for increased investment allocation to ASEAN, underscoring the region’s long-term potential. Southeast Asia presents a compelling investment opportunity, offering a blend of stability, growth potential, and attractive valuations, making it a strategic destination for global investors navigating an uncertain economic landscape.
