HONG KONG/SINGAPORE, March 7 (Reuters) – Southeast Asian equities are becoming a safe haven for international investors fleeing a deteriorating outlook for global equities who hope for sustained strength in the region’s material-intensive economies raw.

The renewed interest is driven by soaring commodity prices which is good news, especially for major producers in Indonesia and Malaysia, coupled with the scarcity of economic ties between Southeast Asia and developing nations. war that are Russia and Ukraine.

Supply disruptions caused by the conflict and subsequent Western sanctions have pushed commodity prices higher, with Brent, coal, palm oil and nickel hitting multi-year highs.

“Commodity prices are now likely to be higher for longer,” said Jerry Goh, an Asian equity investment manager at home of abrdn funds.

“We expect Malaysia and Indonesia to continue enjoying trade surpluses, which should bolster government revenue and encourage consumer spending.”

Foreign flows into stocks in Indonesia, Southeast Asia’s largest economy, reached $1.2 billion in February, Reuters data showed, the most since April 2019, after net outflows for a much of 2019 and 2020 and only small entries in 2021.

February flows into Thai stocks were the highest since at least 2008 and the Philippines also saw flows. In contrast, India and Taiwan, darlings of investors in 2021, both recorded exits in February.

Indonesia is the world’s largest exporter of palm oil, thermal coal and a major producer of nickel, copper and refined tin, while Malaysia is the world’s second largest producer and exporter of palm oil.

“As economic activity picks up in these two markets, this should also support a recovery in domestic earnings,” Goh added.

The defensive qualities of the ASEAN group of nations could be tested in the coming months as the Russia-Ukraine conflict escalates, said Kenneth Tang, senior portfolio manager for Asian equities at Nikko Asset Management.

MSCI’s broadest global equity index (.MIWO00000PUS) has fallen 11% year-to-date, but Indonesia, with year-to-date gains of nearly 5%, is the Asia’s best performing market after the Jakarta Composite Index (.JKSE) broke a record high last week.

Coal producers Adaro Energy (ADRO.JK) and Bayan Resources (BYAN.JK) hit record highs.

Shares in neighboring Malaysia (.KLSE) hit a 10-month high last week after jumping 6.3% in February.

Thus, Indonesia and Malaysia offer a “perfect hedge against stagflation” as the only two net exporters of commodities in Asia excluding Japan, Morgan Stanley economists said.

Abrdn says he likes sectors exposed to commodity markets, but also pointed out that low-cost Southeast Asia is well positioned to attract more foreign direct investment in building supply chains in areas such as electric vehicles and energy storage.

The strong performance of Indonesian markets could bode well for stock quotes as its biggest tech company, GoTo, seeks to launch a domestic IPO that could raise at least $1 billion in the first half, it said. sources.

Indonesian fundraising via IPOs hit its highest level in a decade last year, fueled by investor interest in tech companies.

“SELL WHAT YOU OWN”

Foreign inflows into Southeast Asian equities are a stark change from previous years, when the COVID-19 pandemic had a devastating impact on life and economic growth in many countries in the region.

The economic outlook is brightening.

Indonesia, Southeast Asia’s largest economy, posted a budget surplus of $2 billion in January as tax revenues soared.

This has led to a change in the perception that Malaysia and Indonesia are vulnerable during periods of Fed policy tightening, such as today, thanks to a heavy foreign presence in their bond markets.

Foreign ownership accounted for 28% of Indonesian shares in January, up from 37% in March 2013, according to Nomura. Non-residents now hold only a quarter of Malaysia’s public debt. They hold less than a fifth of Indonesia’s public debt, down from 39% at the end of 2019.

“There’s a saying, ‘You sell what you own,’ and what foreign investors own right now in Asia is India, Taiwan and a bit of Korea,” said Chetan Seth, strategist Asia-Pacific equities at Nomura.

“They don’t own a lot of Southeast Asia, so how much can they sell? »

Reporting by Alun John in Hong Kong and Anshuman Daga in Singapore; Additional reporting by Gaurav Dogra in Bengaluru; Editing by Vidya Ranganathan and Clarence Fernandez

Our standards: The Thomson Reuters Trust Principles.