Asean shares pricey? Mobius doesn’t mind

SINGAPORE: Valuations at a 16-month high are taking the shine off some Southeast Asian stocks. Mark Mobius isn’t flinching.

The region’s equities still offer good value, according to the executive chairman of Templeton Emerging Markets Group, who added that political worries about the region are overdone.

“They’re not really expensive in the environment that we’re in now,” Mobius said. “Southeast Asia is benefiting from the growth of China and increasingly from the growth in India.”

The 12-month price-to-earnings ratio for the MSCI Southeast Asia Index rose from the year’s low of 12.5 in January to a 16-month high of 15.2 in August. It was 14.9 last week, compared with 12.5 for a measure of developing-nation equities. Rising valuations have been a headwind for Asean equities lately, with the regional gauge rallying 1.6% since the end of June, compared with a 9.3% increase in the broader emerging-market index.

Overseas investors have pulled money from the Manila bourse for 26 straight days amid concern about Philippine President Rodrigo Duterte’s abrasive style, while in Indonesia disappointment with the response to a tax amnesty has contributed to outflows. Investors are still pumping money into Thai equities even amid domestic economic sluggishness.

“There are individual problems in each of the countries,” said Mobius. “There’s concern about Duterte in the Philippines, which I think is overdone. There’s concern about reforms in Indonesia and the political environment in Thailand. I don’t see downside anywhere.”

Foreign funds have pulled $357 million from Philippine shares this month and $300 million from Indonesia, paring inflows this year to $668 million and $2.6 billion, respectively. They added $525 million to Thai equities in September and $3.8 billion so far in 2016.

The MSCI Southeast Asian gauge has dropped 3% since this year’s closing high on Aug 8. In the past month, the SET Index has fallen 4.5%, the Philippine benchmark is down 3.3%, the FTSE Bursa Malaysia KLCI Index declined 1.1% and the Jakarta Composite lost 0.3%. Apart from the Philippines, individual markets are still up in this quarter, with Vietnam at its highest level since 2008.

“I like the consumer sector in Southeast Asia because per capita incomes are going up,” said Mobius. “On a selective basis, I like technology.”

The Philippines remains a very investible market as there’s confidence the fundamentals put in place under the administration of former president Benigno Aquino will continue, said Macquarie Group CEO Ben Way.

“Despite what you read or see on TV at the moment, actually the story on the ground remains incredibly positive,” he said.