Trump’s visit spurs hopes for South-east Asia as regional stocks struggle
The region’s equities seen ripe for rebound after investors pull nearly US$900m this month
[KUALA LUMPUR] Donald Trump’s visit to South-east Asia is offering a glimmer of hope for the region, whose stocks have been among the worst-performing in the emerging markets complex.
Trump’s attendance at the Asean Summit is raising expectations for deeper US trade engagement with the bloc, which faces some of the highest tariffs. The conference is also rekindling broader interest in South-east Asia, where bargain valuations, supply chains shifting away from China, and signs of political stabilisation are making the region increasingly investable.
“Any sign of more durable and favourable US-Asean trade framework would be positive for the region,” said Homin Lee, a macro strategist at Lombard Odier in Singapore.
South-east Asian equities are ripe for a rebound after global investors withdrew nearly US$900 million from the region’s emerging markets this month, extending a trend of outflows in all but one of the past 12 months, according to Bloomberg-compiled data.
Capital has gravitated towards tech-heavy markets like Taiwan and South Korea, as well as China, where equities have been on a tear.
MSCI’s gauge of South-east Asian stocks is up 10 per cent this year, trailing the broader emerging markets index’s 29 per cent gain in its biggest annual underperformance since 2020.
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Valuation
Asean markets at least offer something for the emerging-market value investor, a reason to buy in a world where high valuations are once more under the spotlight. The MSCI Asean Index trades at roughly 14 times forward earnings – well below the 19 times for MSCI’s All Country World Index, which is at its most expensive in over four years, according to Bloomberg-compiled data.
There are local drivers, too.
Vietnam is targeting annual growth of at least 10 per cent over the next five years as it benefits from the “friendshoring” of high-end manufacturing away from China. Earlier this month, the country clinched a long-awaited upgrade to emerging-market status from FTSE Russell, a shift that could attract billions of US dollars to its markets.
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Malaysia is also drawing attention as it builds out data centres to capitalise on the global AI boom, along with its ambition to become a key processor of rare earth metals from Australia.
“We’re getting a bit more cautious” on the global rally, said Shay Pang, senior multi-asset portfolio manager at Amova Asset Management in Singapore. “If you are an Asia-Pacific portfolio manager, I would rotate out of China and move into more defensive countries such as India and Asean.”
Trade deals
While global attention is fixed on Trump’s upcoming meeting with Chinese President Xi Jinping, his initial stop in Kuala Lumpur carries its own significance. For Malaysia, the Asean summit was an opportunity to wrap up trade negotiations and showcase its role in tech development.
Trump and Malaysia’s Prime Minister Anwar Ibrahim signed a trade agreement and critical minerals pact Sunday, as the US leader looked to boost trade across South-east Asia and respond to China’s tightening of access to rare earths. Anwar called the deals – which come after Trump set a 19 per cent tariff on Malaysia in August – “a significant milestone” that would improve the relationship between the nations beyond trade.
The US president also announced on Sunday a broad trade agreement with Cambodia, as well as a framework trade deal and critical minerals memorandum of understanding with Thailand.
Meanwhile, Canada is advancing longer-term negotiations with the bloc, and the European Union is targeting an agreement with Asean by 2027.
Still, trade firmly remains a headwind. US tariffs on the bloc are among the highest globally, and ongoing tensions between Washington and Beijing continue to cloud the outlook.
Liquidity constraints in the markets persist. Central banks across the region also remain cautious on further easing, hampered by currency volatility concerns.
Meanwhile, China’s manufacturing dominance, despite mounting US pressure, continues to pose competitive threats to South-east Asian producers.
“In order to find long-term capital being deployed in Asean, we would need to see more growth, trade tariff rates changing substantially and a significant currency appreciation,” said Mixo Das, Asia equity and quant strategist at JPMorgan Chase . “I think the bigger risk is that nothing changes and the status quo continues, rather than something that materially worsens from here.”
Insulated
Even so, some investors see opportunity in Asean’s relative insulation from AI-driven rallies elsewhere. With concerns over a potential bubble in the sector, the region’s limited exposure may prove to be a strength.
Easing political uncertainties in Thailand and Indonesia also offer a measure of reassurance to investors. In Thailand, the government is signalling more populist spending ahead of upcoming elections, while officials work to counter the effects of a strong baht, a key pressure point for manufacturers and tourism.
Thai stocks may get a boost after Prime Minister Anutin Charnvirakul and his Cambodian counterpart, Hun Manet, signed an agreement Sunday to manage a border dispute that had escalated into deadly clashes earlier this year. The deal was signed at a ceremonial event in Malaysia, which helped facilitate talks between the South-east Asian neighbours.
Indonesia has seen a shift in sentiment after new Finance Minister Purbaya Yudhi Sadewa injected US$12 billion into state banks to spur lending. The country’s stock benchmark is expected to offer around 5 per cent dividend yield, according to Bloomberg-compiled data, an attractive draw for income-focused investors.
Banks, healthcare and consumer stocks in Indonesia, Singapore and Thailand offer value, said Vikas Pershad, an Asian equities portfolio manager at M&G Investments.
As multinationals expand their presence in the region, “South-east Asia offers compelling long-term opportunities,” he added. BLOOMBERG
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