| SINGAPORE, Sept 5
SINGAPORE, Sept 5 The exuberant exchanges of
Thailand, Indonesia and the Philippines are Asia's
best-performing stock markets this year, and investors believe
this success can continue despite valuations at multi-year
Thailand's SET index has risen 18 percent in 2016,
versus 8.8 percent for the benchmark MSCI Asia ex Japan
. The Jakarta Composite index is up 17.3
percent and the Philippines' PSEi has gained 12 percent.
Valuations have surged alongside. MSCI Thailand
is trading at a 16-year high of 14.9 times
earnings, compared with its 20-year average of 13.4.
MSCI Indonesia is trading at 16.8 times
earnings, its highest since July 1999. The Philippines
is close to its 15-year price-to-earnings peak
hit in February 2015.
Many investors think further gains are in the offing.
"While stock valuations are above historical averages, the
earnings outlook for 2017 has become more positive, especially
in Indonesia and Thailand," said Jolene Seetoh, director for
Asia ex-Japan equities at United Overseas Bank (UOB) in
"Improving economic fundamentals and growth in corporate
earnings should drive positive market performance over the
medium to long term," she said.
Fund flows support that view. Indonesia, Thailand and
Philippines have seen $7.3 billion of foreign equity inflows
this year, compared with $11 billion of outflows over the last
three years, Sean Gardiner, equity strategist at Morgan Stanley
Asia, wrote in a research note.
All three countries' second-quarter gross domestic product
growth beat forecasts. Thailand's economy expanded 3.5 percent
from a year earlier, the best in 13 quarters. Indonesia grew 5.2
percent, and Philippines rose by 7 percent, the fastest
year-on-year growth in three years.
Thailand's military government, which recently won public
support in a referendum, is expected to distribute more wealth
to the countryside, bolstering consumer spending and economic
growth generally, said Mark Mobius, executive chairman of the
Templeton Emerging Markets Group.
In the Philippines, "the new government's strong stance on
crime is receiving support from the countryside and particularly
among the low-income segment where crime has been a major
problem," Mobius said. "This is going to feed into a general
feeling of confidence and consumer spending and investment is
In Indonesia, President Joko Widodo's reforms are finally
progressing and confidence in his ability to implement reforms
to attract investment is growing, Mobius said.
A Federal Reserve interest-rate hike this year, however,
could lead to some short-term stock volatility, UOB's Seetoh
Half of all Philippine and Thai companies beat second
quarter earnings estimates, Morgan Stanley data show. Indonesia
was the laggard, with only 32 percent of companies beating
estimates and 44 percent falling short.
Analysts expect Thai earnings per share (EPS) in 2016 to be
10.7 percent higher than 2015, after a 1.4 percent decline in
2015, according to data from Nomura.
In the Philippines, EPS are expected to be 7.6 percent
higher than in 2015, when they rose 5.8 percent.
Indonesian EPS are forecast to rise 7.2 percent in 2016 from
an 8.2 percent decline in 2015.
Of the three markets, Indonesia's ability to sustain such
rapid share price growth has raised the most doubt, particularly
because its recent gains have been fuelled by a tax amnesty bill
meant to encourage Indonesians to repatriate money held
offshore, and those inflows have been disappointing, John Woods,
Credit Suisse Asia Pacific chief investment officer, wrote in a
"The market rally appears to be riding on irrationally high
hopes," he said. "The economic recovery has... been subdued and
could face challenges in the second half as a rising fiscal
deficit limits government spending, leading to potential
(Reporting By Nichola Saminather; Editing by Eric Meijer)