A record month of redemption from equity mutual funds invested in Southeast Asia suggests a boom in these markets could be over, as money managers look elsewhere for value with their sights set on China and India.
Pricy share valuations in Southeast Asia are steering the funds to cheaper markets after a bull run in which the Philippines and Thailand were some of the best performers in the world.
Investors cashed out a record net $505 million from equity mutual funds investing across Southeast Asia in October, a Reuters analysis of Lipper data shows.
It marked a major turning point. They had been net buyers each month this year up to July, before pulling out a slight $1 million in August and $2 million in September and then cashing out in earnest in October.
Net flows into offshore funds investing in Indonesia, which had attracted about $1 billion earlier in 2012, turned into outflows on a year-to-date basis in October.
“There are a lot of great companies in Asean. But as a market, the region is looking pretty fairly valued,” said Bill Maldonado who oversees about $80 billion as the chief investment officer in Asia-Pacific for HSBC Global Asset Management.
“We believe very strongly that targeting growth at the expense of a focus on valuation is not a winning strategy,” said Maldonado, whose fund company has gone underweight on Southeast Asian shares and overweight on China.
The IBES MSCI China and India indexes are trading 18 per cent and two per cent below their 10-year median forward 12-month price-to-earnings ratio, a measure of relative value.
Similar ratios for the Philippines and Thailand are 25 per cent and 11 per cent above the median, respectively.
Southeast Asia’s relatively small equity markets make them vulnerable to shifts in foreign investment flows. The market capitalisation of the Philippines' share market, for example, is smaller than China Mobile or PetroChina.
Of some 60 funds focused on Southeast Asia, the top three by size manage more than half of the total assets under management.
These three funds had net outflows worth about $600 million in the last two months. The biggest, Fidelity Funds-Asean, had estimated net outflows of $350 million, Lipper data show.
Southeast Asian markets are unlikely to outperform in 2013 but fund managers do not expect a regional meltdown, citing support from local investors, especially in Malaysia and Indonesia, and relatively strong regional economies.
Flows into pan-Asia funds, particularly exchange-traded funds, would also mean some allocation to Southeast Asia as seen recently with flows into Asia for week ended December 12 at $2 billion, the highest since 2010, data from Citigroup showed.
Southeast Asian markets have provided a relative safe haven since the global financial crisis as markets and economies in other parts of the world have faltered. Economic growth has been resilient, helped by demand from an expanding middle class.
Philippines stocks across the board have rallied 29 per cent this year up to December 13. In Thailand, stocks have rallied 36 per cent, data from StarMine, a Thomson Reuters company, shows.
Consumer sector stocks such as Indonesian retailer Hero Supermarket, Thailand’s Serm Suk Pcl and Philippines-based food and beverage company RFM Corp have more than tripled in value so far this year.
The euphoria propelled the cash managed by Southeast Asian offshore mutual and exchange-traded funds to a record $27 billion earlier this year.
Seven funds focusing on Southeast Asia are among the top-100 performers in the world, an analysis of nearly 27,000 equity mutual funds tracked by Lipper shows.
