After a turbulent period of trade disputes and currency weakness, some emerging markets in Asia have rallied in recent months, boosted by dovish comments from Federal Reserve Chairman Jerome Powell and a brief trade truce between the U.S. and China.
What’s occurring
Two benchmarks stand out: Indonesia’s Jakarta Composite has gained greater than 10% up to now three months, hitting a 10-month high as of Friday’s close. Meanwhile, the Philippine Stock Exchange Index is up 13% after hitting a near two-year low in October. The Indonesian rupiah and the Philippine peso are up 7.3% and three.4%, respectively, because the U.S. dollar retreated.
Relatively attractive valuations have likely helped. Even after the rally, Jakarta and Manila benchmarks trade at about 15 and 16 times expected earnings, Refinitiv data shows, compared with India’s Sensex at 18 times. The Sensex, which gained almost 6% last yr, is down 0.2% this month.
The drop in oil prices also lifted spirits in Indonesia, Southeast Asia’s largest economy, and its northern neighbor, as each are oil importers with current-account deficits. That contrasts with nearby energy-exporting Malaysia, for instance.
What does it mean
Both countries’ large domestic markets make them higher shielded from trade tensions than other Asian countries which can be more depending on business with China.
Min Lan Tan, head of Asia Pacific investment at UBS Wealth Management, said the bank’s unit recommends clients hold more Indonesian assets than its benchmarks suggest, given its solid growth, attractive valuations and the prospect of a stronger currency.
Ms Tan said Indonesia’s central bank did the best thing by allowing the currency to fall last yr while the dollar rose, which helped keep the economy growing.
He recommends underweighting the Philippines attributable to inflation concerns and takes a more neutral stance on India attributable to high valuations despite strong economic growth.
A busy political calendar could also weigh on investment decisions, with the approaching months seeing Indonesia’s presidential election in April, a byelection within the Philippines in May and India’s national elections in the primary half of the yr.
Source: Wall Street Journal | Morning star
