We’ve written a lot about the recent attraction to smaller emerging
markets, especially ASEAN nation. But
all that attention has driven some of these markets to a peak and they are now
starting to underperform, Credit Suisse strategists note.
For example, the MSCI Malaysia
index peaked versus the MSCI Asia Ex-Japan index in July while Indonesia has
lagged all year.
As global industrial production
bottoms, the strategists say there will be less of a need to “hide” in ASEAN
countries, which could cause underperformance. Credit Suisse offers up some
reasons why these markets may lag:
1- ASEAN’s premium to the region
at 21% is the highest ever with three of the four most overvalued countries
coming from ASEAN (Indonesia, Philippines, Malaysia).
2- Inflation – the three-month
moving average for CPI in Indonesia and the Philippines is running at 9.1% and
6.4%, respectively, versus 1.3% for Non-Japan Asia.
3- There’s only so much equity
stock — Both as a % of market capitalisation and equity turnover is highest
this year in the Philippines and Malaysia.
4- It’s too crowded, with the
Philippines the most crowded.
Their recommendation: Head to
Korea and Hong Kong. (We wrote about others who were upbeat on Korea yesterday)
Reshma Kapadia
Business & Investment Opportunities
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