JP Morgan, Goldman Pick Southeast Asia’s Best Markets for 2022

Indonesian stocks are among the top picks of JPMorgan Asset Management and Goldman Sachs for 2022. In this April 2019 photo, a bull statue stands in the lobby of the Indonesia Stock Exchange (IDX) in Jakarta, Indonesia.

Dimas Ardian | Bloomberg via Getty Images

Geopolitical tensions are rising around the world, but Southeast Asian markets may offer relative safety to investors, according to top investment banks.

As we head into the next quarter of 2022, CNBC asked analysts from Goldman Sachs and JPMorgan Asset Management which Southeast Asian markets were their top picks.

Stocks in Southeast Asia have underperformed, and “global investors have largely ignored them for a decade,” said Timothy Mo, senior Asia Pacific equity strategist at Goldman Sachs.

Indonesia is the top pick in Southeast Asia for both Wall Street banks.

Indonesia: Banking Plays and Commodities

Stock Picks and Investment Trends from CNBC Pro:

Global commodity prices have been in flux since the outbreak of war in Ukraine after the Russian invasion in late February. Russia is a major oil producer while Ukraine is a major exporter of other commodities Like wheat and corn.

As of Monday morning in Asia, the international standard Brent crude futures contracts It’s up more than 30% so far this year.

Vietnam and Singapore

JPMorgan Asset Management also loves Vietnam, which Low described as a “performance star of the past few years” in economic resilience and growth. He added that Vietnam is one of the few economies globally that has experienced positive economic growth during the pandemic.

“To capitalize on growth, we have a position in high-quality consumer agents and banks,” he said, without naming specific stocks.

Meanwhile, Singapore is another Southeast Asia that Goldman Sachs loves.

Mu said there are three main reasons why the investment bank loves Indonesia and Singapore.

  1. Improving economic momentum and growth from a region recovering belatedly from Covid-related setbacks.
  2. The banking sector is heavily weighted in stock indices and is set to benefit from a shift to tighter monetary policy and higher interest rates.
  3. The “gradual emergence” of digital economy companies included in Indonesia and Singapore indices.

Indonesia Jakarta Complex It is up more than 7% this year, while the Vietnamese VN index is up about 1% in the same period. Singapore Straits Times Index Gained more than 9%.

By comparison, MSCI’s broadest index of Asia Pacific shares outside Japan was down 6%.

on Wall Street, Standard & Poor’s 500 It’s down 4.6% so far this year, while pan-European Stokes 600 It has decreased by about 6%.

In recent weeks, investors have been grappling with a range of concerns, from the sharp rise in commodity prices caused by Russia’s invasion of Ukraine to high interest rate environment As major central banks like the United States Federal Reserve It seeks to combat inflation.

Shelter from geopolitical tensions

Southeast Asia is “relatively isolated” from rising geopolitical tensions in Europe, with Russia and Ukraine accounting for less than 1% of regional exports, according to Luo.

“The escalation in geopolitical risks is making near-term tailwinds for commodity prices to support the strength of the commodity-exporting countries’ markets in ASEAN,” he said, referring to the 10 ASEAN member countries.

No ‘mass outflows’ expected

Global investors have repositioned in the past few weeks in anticipation of more aggressive moves ahead with the Fed’s monetary tightening, but analysts expect the impact on Southeast Asia to be relatively smaller than previously.

In March, the Federal Reserve Raising interest rates for the first time since 2018Later, Fed Chairman Jerome Powell pledged Cracking down on “too high” inflation.

The prospect of an interest rate hike by the Federal Reserve raised fears of capital outflows and currency depreciation in emerging markets in Southeast Asia, a phenomenon seen in 2013 during a “gradual tantrum” that saw bond yields rise after the Fed hinted that Asset purchases may expire. .

We don’t expect a mass exodus [from ASEAN] As we saw in the recent Tantrum,” Lu said, explaining that Southeast Asia’s nation-wide balance sheets are “more healthy overall” now than a decade ago.

Most central banks in Southeast Asia, with except for Singapore, did not tighten monetary policy. This is partly due to the inflation situation at the regional level, which is relatively less severe compared to the advanced economies of the West.

Southeast Asian economies today are also more resilient compared to previous cycles, according to Moe, who cited external balances that are in better shape as well as currencies with attractive value.

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