Southeast Asian markets remain attractive as supply chain shifts away from China to the region will mitigate some of the impact from a slowdown in the world’s second-largest economy.
“Southeast Asia remains in a sweet spot,” Rajiv Batra, Southeast Asia and emerging markets equity strategist at JPMorgan Chase & Co., said on Bloomberg TV. China growth slowdown will impact Southeast Asian exporters, but there is some cushion due to the ongoing supply chain shift from the country toward the region, he added.
The US bank is overweight Indonesia and Vietnam as those two markets have been at the forefront of attracting foreign direct investment flows from supply chain shifts as well as friend-shoring and nearshoring. It’s neutral on Singapore, while being underweight on Malaysia and the Philippines.
The MSCI ASEAN stock index has fallen around 3.5% this year so far, lagging the MSCI global EM index which has offered returns of around 5% over the same period.
Moreover, Southeast Asian central banks are expected to keep rates on hold in the second half, JPMorgan’s Batra said. Policymakers in the region didn’t hike as much as their global emerging-market counterparts due to more benign inflation, so they’re likely to announce less rate cuts following the pause in the second half, he added.
