Southeast should step out of China’s shadow
January kicked off with China front and centre as the upheaval in its stock market caused indices across the globe to tumble. South and southeast Asia did not escape unscathed but the chances are that when markets stabilise, investors will be eager for equity issuance from the region.
The fact that poor manufacturing data from China sent a wave of panic across Asian stock markets early this year, and then to the rest of the world, goes to show two things: just how globalised the world has become and how closely investors are tracking China.
China’s size and growing global influence means that it can often overshadow the rest of the region, but with Chinese issuers expected to face a challenging time throughout the year, it’s time for firms from other Asian geographies — particularly the Philippines, Indonesia and India — to shine.
Sure, those markets have also been rocked by volatility this month. The benchmark Philippine index, for example, shed 4.4% on Monday, far higher than the 2.8% decline in Hong Kong’s Hang Seng index and just a bit under the Shanghai index’s 5.3% drop. The Indonesian and Indian markets have also slumped.
But investors are likely to view equity raisings from these countries far more favourably than China.
One reason for this is the comparatively stable macro fundamentals of these economies. Philippines is expected to recorded GDP growth of about 6% last year, according to the Asian Development Bank and the rate is projected to rise to 6.3% this year.
Indonesia meanwhile is forecast to have grown by 4.9% in 2015 but ADB is also expecting it to pick up pace in 2016. The same goes for India, which is predicted to grow by a strong 7.8% this year.
Macro-economic considerations have become all the more important to equity investors in light of the recent volatility and the economies of south and southeast Asia have much to recommend them in this aspect.
All of which means when markets are less choppy and investors are looking for places to park their money, stocks in India, Indonesia and the Philippines could prove attractive. The deals’ pipelines are hefty and any equity raising could be received well so long as companies and sellers are reasonable in terms of valuations and expectations.
Of course, returns are important to investors and the year-to-date numbers from these countries cannot be said to have sparkled. The Philippines index has provided investors with negative returns of 7.69% so far this year, the Indonesian index negative 2.91% and the Indian indices are negative 5.50%.
But while the figures are shabby, their returns are not that bad when compared to the negative returns for the Shanghai index (-17.42%), Shenzhen (-22.28%) and Hong Kong (-10.40%) year-to-date.
Whether the southeast and south Asian indices will outperform China in the longer run is a big question. But for now, they provide a cause for optimism.