SE Asia stocks starting to show promise
By Dominic G. Diongson
Bloomberg News Service
MANILA — To gauge the impact of the 1997 Asian financial crisis on the region, look no further than the stock markets of the Philippines, Indonesia and Thailand.
Their key stock indexes are among the world's best performers this year, up at least 20 percent in dollar terms. They also are among the six worst since July 2, 1997, when Thailand's decision to devalue the baht sent Asian markets into a tailspin.
For investors, this shift may mark the start of a rally that will help Southeast Asia recapture lost ground. Low interest rates and strong currencies are encouraging economic growth — and boosting prospects for some companies.
"On valuation grounds, Indonesia could gain 20 percent more," said Mike Kerly. "The growth next year for Asia is quite decent."
Government officials for the Philippines and Thailand expect their economies to improve this year as interest rates decline. Gross domestic product in the Philippines may rise at least 4 percent this year. In Thailand, the government raised its estimate on economic growth to at least 2 percent from 1 percent.
Meanwhile, Indonesia's rupiah has risen 1.5 percent against the dollar over the past month, which has boosted investor confidence.
"There have been fundamental changes taking place in the past six to nine months," said Emil Wolter, who helps manage about $1.5 billion at Pictet Asset Management Ltd. in London. "Stock markets in Indonesia, Thailand and the Philippines are finally starting to recognize this."
By some measures, the three markets are cheap relative to others in Asia. Even after rising 20 percent this year, Indonesia's Jakarta Composite Index trades at 8.7 times last year's earnings. That's half the ratio of stocks in Hong Kong and a third that of Singapore.
Still, a stock-market rebound isn't a sure bet. Some investors worry that economic growth in the United States will remain weak, stunting growth in Asian exports of clothing, televisions and compact disc players.
In Thailand, banks are reluctant to increase lending, for fear of swelling their bad loan portfolios. State asset sales show signs of stalling in Indonesia, which backtracked last year on plans to sell control of its biggest cement company to Cemex SA of Mexico, undermining hoped-for government reforms.
In the Philippines, the market is still trying to recover after a 1999 insider-trading scandal.
And even though a U.S. economic recovery would help Asian exporters, it may benefit mainly firms in Japan, Korea and Taiwan.
Money managers generally hold only a small portion of their portfolios in Southeast Asian markets.
Yet interest in these markets may be growing. Foreign investors bought $9.5 million more of Thai stocks each day since the start of the year, up from $3.9 million in the same period last year. In the Philippines, they were net buyers of $1.5 million. Compare those figures with Japan, where foreign investors sold a net $33 million each day this year.
Among the winners so far is Ayala Corp., owner of the second-biggest bank in the Philippines. While Ayala lost money in the fourth quarter, many investors expect profit to improve this year as lower interest rates encourage consumers to borrow more to buy cars, homes and property. The stock surged 50 percent this year, double the gain in the key index.
In Indonesia, investors are turning to PT Telekomunikasi Indonesia on expectations that the government's plan to break up the country's biggest phone company will make it more efficient. The shares rose by about a fifth this year, matching gains in the Jakarta Composite Index, yet trade at less than 10 times next year's earnings.
