Cash descends on Southeast Asia where stock rally proves durable

Indonesian Rupiah banknotes

Southeast Asian stocks are winning fans again, with investors betting a rally that’s driven equities from Bangkok to Manila to the highest levels since the middle of 2015 has room to run.
Foreign investors have pumped USD596 million into Philippine, Thai, Indonesian and Vietnamese shares so far in June, wiping out declines in April and early May. Rising commodity prices and dwindling odds of a U.S. rate increase by July are providing a favorable global backdrop, while new leaders, interest-rate cuts and state spending are generating optimism closer to home.
The rally will be tested as Federal Reserve Chair Janet Yellen gives clues on the trajectory of U.S. rates tomorrow, the Bank of Japan meets the next day and the U.K. votes June 23 on whether to stay in the European Union. Acting as bulwarks against the potential turbulence are optimism Rodrigo Duterte can spur Philippine growth, Thailand’s infrastructure largess, efforts to cut Indonesian lending rates and Vietnam’s opening up to foreign money.
“Asean fundamentals are very strong: budget deficits are coming down and consumer spending is starting to pick up,” said Raymond Kong, who oversees $2.5 billion as a fund manager at One Asia Investment Partners in Singapore. “The rally in Asean is sustainable. It’s not going to be a flash in the pan.”
It was only a matter of weeks ago that the foul-mouthed rants of then presidential frontrunner Duterte were alarming investors and spurring concern that Benigno Aquino’s legacy of shrinking budget deficits and credit-rating upgrades could be threatened. Those worries have evaporated since Duterte’s May 9 victory, which powered a surge in the Philippine Stock Exchange Index and saw foreigners pile into the nation’s equities.
The president-elect’s pledges to boost infrastructure spending, cut red tape and invest more in farming have impressed economists at Goldman Sachs Group Inc., who said last week they could push economic growth, the fastest in Asia last quarter, even higher.
“We are expensive but I think the market is okay with the valuation given the growth that the economy is capable of achieving,” said John Padilla, who helps manage about $7.8 billion as head of equities investment at Metropolitan Bank & Trust Co. in Manila. “The market is willing to give Duterte the customary honeymoon period and see what he can do.”
Like the Philippines, Vietnam also has a new leader with Prime Minister Nguyen Xuan Phuc taking over in April. He’s reassured investors by pledging to meet a 6.7 percent growth target this year, the same pace of expansion as in 2015.
The nation is opening up more to foreign investment as it chases the holy grail of  emerging-
market status, which would put it on the radars of global asset managers.
President Joko Widodo of Indonesia said in February that he wanted interest rates to “fall, fall, fall, fall and keep falling” as he sought to boost economic growth from a six-year low. The central bank seems to have heeded his call with three rate cuts in the first quarter.
The Financial Services Authority has also gotten in on the act, capping banks’ deposit rates and forcing them to lower lending rates in an attempt to give the economy a dose of cheap credit. While it remains to be seen how successful these efforts will be in spurring expansion in a country that’s been hurt by falling commodity prices, investors have been encouraged.
Meanwhile in Thailand, low interest rates and bond yields have boosted the appeal of shares and $18 billion of economic stimulus measures, including infrastructure projects, announced by Prime Minister Prayuth Chan-Ocha, has given the market added momentum.
“The low interest-rate environment will prompt investors to hunt for better returns in Thai stocks,” said Chakrit Puechpan, the Bangkok-based executive vice president at MFC Asset Management Co., which oversees about $10 billion. “Most investors don’t seem to care about the current sluggish economy and are betting on state spending to help it recover.” MDT/Bloomberg