Investors flock to South-east Asia markets on renewed interest in tech, safe-haven factor

WITH geopolitics coming into play, investors have been parking their money in some countries in South-east Asia – a region that is seen to be less volatile compared to other global markets.

Supply chains are shifting away from China and into the region, attracting manufacturing and capital inflows, Paul Chew, head of research at Phillip Securities Research, told The Business Times.

The region’s abundant and cost-effective resources – including steel, aluminium and data centres – have also attracted investors, he added.

Craig Loveless, head of Norton Rose Fulbright’s corporate and mergers and acquisitions team in Asia, also said South-east Asia is a “safe haven for the future” as its growing economies, underpinned by demographics, can support long-term growth.

Over the past one year, as at Jan 31, the MSCI Asean Index logged returns of 16 per cent. By comparison, the same one-year period for the S&P 500 saw the index soar nearly 22 per cent, generally rocketing in the past couple of years on artificial intelligence (AI) optimism.

However, US shares have recently been volatile, while Chinese stocks by comparison have suffered a slump in the past few years, although they recently rebounded strongly on the back of AI buzz after DeepSeek rose to prominence.

On the leader board

Yet, performance across the various markets in South-east Asia is disparate, with some lagging behind and others thriving.

Singapore and Malaysia have performed stronger in the year to date, said market watchers.

Colin Ng, head of Asia equities at UOB Asset Management (UOBAM), said: “Singapore’s strong equity market performance to date has been driven by good gains in its financial, communication services and industrial sectors.”

The Straits Times Index (STI) soared to a new record twice in February, in the latter instance trading at the all-time high of 3,951.64 on Feb 24. That was in a month when all three Singapore banks – DBS, OCBC and UOB – announced their results. Analysts are bullish on the STI, and expect it to trade between 4,000 and 4,200 in 2025. The index closed at 3,914.48 on Friday (Mar 7).

Tan Altundag, investment analyst of emerging equities at Pictet Asset Management, said the trio of local banks are regarded as a “notable safe haven in a stronger US dollar environment”.

The relative stability between the Singapore dollar and US dollar also contributed to the “stellar gains” in the country’s market, added Ng of UOBAM.

As for Malaysia, Pictet’s Tan said he was seeing “pockets of opportunities” as the country undergoes “significant change through reform and investment”.

For the six months ended Jan 31, the MSCI Malaysia Index logged returns of 1.6 per cent.

One such opportunity is the establishment of the Johor-Singapore Special Economic Zone (JS-SEZ), which was set up in January to drive investments in key sectors including manufacturing, logistics, food security, tourism as well as education and health.

Both countries have aimed for 100 projects in the next 10 years, and to create 20,000 skilled jobs.

CIMB director of investment research and advisory Jason Kuan said: “Asean is positioning itself to level up its capabilities and to move up the value chain.”

The recent JS-SEZ announcement plays a part in driving investors to the region, added Kuan, who pointed out that “a lot of flows” are entering Singapore and Malaysia.

“It depends on where these countries demonstrate their expertise. For example, consulting services, chemicals, pharmaceuticals and tech have been going into Singapore, while Malaysia, having more strength in biofuels, will attract investors in that area,” he said.

Stock picks for Singapore and Malaysia

Banks and semiconductors are investors’ top sectoral picks in both Singapore and Malaysia, analysts said.

John Tsai, head of growth equities at Eastspring Investments, said: “Singapore banks have been impressive in returning excess capital to shareholders while balancing solid earnings growth.”

DBS, OCBC and UOB posted stable earnings for the fourth quarter ended December and announced attractive capital return plans.

As for Malaysia, CIMB’s Kuan sees “a lot of flows into the banks” as investors are expecting interest rates to remain higher for longer. With higher rates, banks are projected to log better net interest margins, he added.

Semiconductor plays have also been a hit among investors in Malaysia due to the country’s National Semiconductor Strategy, said Kuan. The strategy aims to attract RM500 billion (S$150 billion) in investment and create 10 local companies focused on design and packaging.

Pictet’s Tan also noted that the semiconductor industry has contributed to “renewed investor interest in the country”.

“As a regional technology hub, Penang has experienced a notable pickup in investment demand amid worsening US-China trade tensions,” he said. Penang accounts for more than 5 per cent of global semiconductor sales, and houses three of the world’s leading chipmakers.

He said that Malaysia has also become a location of choice in the region for many tech firms looking to diversify their supply chains in light of the China+1 strategy.

This semiconductor boom is expected to drive more initial public offering activity in Malaysia, said Tan, who expects to see more semiconductor names targeting to list in 2025.

Lagging behind

Markets such as Indonesia and the Philippines have experienced local currency depreciation against the US dollar, thus contributing to their weaker stock market performance, said UOBAM’s Ng.

For the six months ended Jan 31, indices MSCI Indonesia and MSCI Philippines logged declines of 5.8 per cent and 9.3 per cent, respectively.

Eastspring Investments’ Tsai also said the overall macro conditions in Indonesia and Thailand “remain lacklustre”, and the government policy stance in both countries seems “a bit challenging”.

Investors remain on the sidelines in Thailand and generally ignore the Philippines, which is too illiquid, said Tsai.

“Vietnam could be interesting, but given the country’s huge trade surplus with the US, investors remain cautious as they await more clarity around US tariffs,” he added.

Outlook

Tsai believes that South-east Asia could be “a very attractive market” for investors in the medium to long term, given the region’s structural tailwinds.

These include favourable demographics with a young and growing population and a rising middle-income class, global supply chain diversification, as well as historically low allocation by global investors in the emerging markets and particularly, Asean markets.

“Whatever happens in the US over the next few quarters is going to have the biggest impact on South-east Asian markets,” said Tsai.

He added: “If the US dollar strength and higher-for-longer rates start to wane and US exceptionalism shows signs of ending, then the Asean region (and emerging markets) would become much more attractive to investors.”

Phillip Securities’ Chew also noted that “there is no true safe haven” when investors are derisking from equities. However, in the longer term, he believes Asean is “well-positioned” to benefit from rising foreign direct investment and increased foreign capital inflows.

UOBAM’s Ng pointed out that Asean markets are underpinned by a high average dividend yield of 3.8 per cent, more stable corporate earnings profile and a reasonable market valuation of 14 times forward price-to-earnings.

Tsai also noted that in a higher-for-longer and a strong US dollar environment, Singapore is “really the only safe haven in the region”.

“Valuations in the Asean markets are relatively cheap, but for the Asean markets to really outperform, we need to see investors allocating capital out of the US.”