INDONESIAN stocks and South-east Asian banks are the preferred picks for a top-performing JPMorgan Chase & Co fund focused on the region.
High-for-longer commodity prices, economic reopening and a revival in tourism will buoy the overall market in 2023, Stacey Neo, co-manager of the JPMorgan Asean Equity fund, said in an interview. "Foreign ownership continues to be very low in this region given the outflows we've seen historically," and there's potential for continued upward earnings revisions based on the results season, she added.
South-east Asia has been one of the few bright spots in global equities in 2022, as higher commodity prices supported exporters such as Indonesia and rising rates were seen as good for banks, which account for about 40 per cent of the benchmark MSCI Asean Index's weight. Indonesia's gauge is among the top-performing major measures globally, near a record high, while the MSCI AC World Index is down 22 per cent.
The Singapore-based executive particularly likes banks in Indonesia and Singapore that will benefit from margin expansion in an environment of rising interest rates and "sticky" inflation, as well as higher loan demand and increased adoption of technology.
PT Bank Central Asia has one of the lowest loan-to-deposit ratios regionally and can "lend without compromising", while DBS Group. has a large current-account-savings-account franchise, she said. The firms, the top two holdings of the fund as of end-September, reported a jump in latest-quarter earnings.
Forward earnings estimates for the MSCI Asean gauge are up almost 5 per cent since the end of March, with financials seeing one of the biggest sectoral upgrades in the last three months as downgrades continue for global stocks.
Neo's US$1.45 billion fund is the only one to deliver a positive return among 14 offshore Asean-focused products, according to Bloomberg-compiled data. It has returned 0.4 per cent. The South-east Asia benchmark is down 13 per cent and the Jakarta Composite Index is up more than 7 per cent.
Most South-east Asia economies are forecast to grow more than 4 per cent in 2023 as economies fight inflation and continue to rebound from the pandemic.
Neo also likes electric vehicle-related stocks in Indonesia as the country develops its vast nickel reserves and plans to subsidise purchases of electric cars next year. Overall, China's eventual reopening will be another catalyst for the region, particularly for Thailand, Neo said. The world's second-largest economy is South-east Asia's biggest trading partner and accounts for more than 20 per cent of tourists.
The fund has its biggest overweights in Indonesia and Vietnam and is underweight in Malaysia and the Philippines. BLOOMBERG