News Analysis: Pockets of opportunity still exist in Southeast Asian

While the performance of Southeast Asian equities was as hazy as in most part of the region under a blanket of toxic haze in the past few weeks, analysts said there are still opportunities for buyers across the bourses of the region.

Major stock markets in Southeast Asia had been underperforming year-to-date compared to the same period last year, mainly due to the prospect of rising U.S. interest rates, waning investor appetite for risk, falling commodity prices, and slowing economies.

Companies from Indonesia, Malaysia and Singapore have scrapped initial public offerings and cautious of launching deals in stock markets that are down between 4.7 percent and nearly 20 percent so far this year, with Vietnam as the exception as its market has posted a 3.1-percent growth.

The UOB Asset Management said Southeast Asian economies continue to face macro headwinds from slowing economic growth and weakening currencies.

However, the UOB does not see a repeat of the 1997 Asian financial crisis as foreign reserves, external debt and banking sector health are all stronger now.

Responding to a slower economic outlook, several Southeast Asian economies like Thailand and Indonesia have introduced fiscal stimulus measures.

The UOB said that while these measures are still relatively modest, they are steps in the right direction to improve business confidence and consumer demand, and ultimately boost economic growth in these countries.

Going forward, the pace of government spending is crucial to driving economic growth in markets like Indonesia, Thailand and the Philippines, the UOB said.

Among individual economies, the UOB maintains an overweight position in the Philippines and Singapore. Indonesia and Thailand are kept at neutral, whereas Malaysia is maintained at an underweight exposure due to its political headwinds and heavy exposure to commodities.

As for sectors in the region, the UOB is currently overweight on the healthcare, telecommunication services, and real estate sectors; underweight on the energy, financials and consumer discretionary sectors; and neutral on the consumer staples, industrials, materials and utilities sectors.

Morgan Stanley Research said investors should focus on Southeast Asian stocks that have been out of favor during the last four to five years, have further capitulated in the recent market correction and are showing stability and improvement in fundamentals.

In an environment of lower growth in the long term, Morgan Stanley believed that growth stocks are likely to continually disappoint, instead companies, which have potential to generate growth on their own through cost and balance sheet restructuring, consolidation or merging and acquisitions, improvement in dividends and free cash flow, are likely to attract investor attention.

Morgan Stanley also liked ideas that offer relative resilience in an uncertain environment, thus recommending companies that have a high probability of managing through a challenging environment and productive growth.

With those criteria in mind, Morgan Stanley rated the Singapore equity market as most preferred market in Southeast Asia, particularly Singapore government-linked companies for their reasonable probability of restructuring driven by consolidation, internationalization and divestment. Endi