Post date: Aug 20, 2012 11:16:19 AM
Southeast Asian markets have captivated investors this year, but the party may be coming to a close.
SOUTHEAST ASIA-ECONOMIES - Beautiful Southeast Asia. A little pocket of paradise, seemingly immune to the wider woes of the world's major economies.
2012 has been a pretty darn good year for the region, with domestic consumption and government infrastructure spending helping to offset the weak global export market.
And unlike in Europe or the US, government debt remains low and growth robustThat's drawn plenty of foreign investors in this year, leading regional markets to outperform developed markets and China, with Thailand and the Philippines both up over 20 percent.
It's a far cry from the Asian financial crisis 15 years ago, which devastated the region's economies and sparked a capital exodus.
But it's not all white beaches and coconuts.
This recent success may have gone too far, too fast. P/E ratios, a key measure of a company's value, are looking overly rich compared to the rest of the region.
KHIEM DO, FUND MANAGER AT BARING ASSET MANAGEMENT SAYING:
"So one has to be much more selective about what one buys in the ASEAN markets these days because it's done so well."
UBS warns that ASEAN government spending is growing faster than incomes, most notably in Thailand. Now that may push up inflation, just as governments look to ease policy further.
These economies can afford to spend now, because they've come into this economic rough patch armed with hefty current account surpluses.
But they'll need to show sustained growth if they don't want the market to punish them down the line.
The pace of economic growth in Thailand has already slowed from the dramatic surge seen earlier this year, as the flood recovery effects subside.
Slower global demand will push that down even further in the third quarter, according to economist Luca Silipo.
LUCA SILIPO, CHIEF ASIA ECONOMIST AT NATIXIS, SAYING:
"Thailand is very integrated in this vertical organization of production across countries, that has made the fortunes of Asia, of Southeast Asia, but obviously makes the pains for Southeast Asia once international trade flows diminishes."
Earlier this month, Morgan Stanley downgraded its ASEAN growth forecasts, with GDP growth seen falling below the 5% mark in 2013
A lot of investors were caught off guard by the rush into ASEAN equities this year, and may be tempted to jump in.
But the balance of risks has swung against the region, something to keep in mind before buying into this investment hot spot
Jon Gordon in Hong Kong.