Fading SE Asian stock recovery puts focus on robust infrastructure story

By Viparat Jantraprap and Nichola Saminather

BANGKOK/SINGAPORE, Nov 16 (Reuters) - As a broad-based

recovery in Southeast Asian stocks from this year's bear market

lows fades, investors are now pivoting to bottom-up strategies

and selectively seeking stocks exposed to the region's more

enduring growth themes.

The MSCI index of Southeast Asia, a

benchmark of the region's biggest stocks, plunged 28 percent in

the five months through September, driven in part by concerns

about slowing Chinese demand and bringing valuations down to

2009 lows.

And while stocks clawed back about a third of these losses

in October, lower commodity prices, tepid Chinese economic data

and the spectre of an imminent U.S. interest rate rise have sent

the MSCI regional index back down 23 percent from its April

peak.

This technically puts the index back into bear market

territory, which analysts define as a fall of at least 20

percent from such a peak.sss

"The market was oversold in September. The delay in the Fed's

rate hike and lower valuations supported the market in October,"

said Soek Ching Kum, Credit Suisse head of Southeast Asia

Research, Private Banking and Wealth Management.

"But Southeast Asia is still at a premium to North Asia, so

investors may not be motivated to come back in a major way yet,"

said Kum.

Stocks fell 0.5 percent on Friday, taking the decline since

Oct. 27, when gains began to slow, to 5.6 percent.

Southeast Asian stocks enjoyed huge inflows from 2009-2012

but these ended when the U.S. Federal Reserve tapered and ended

its bond purchase program in late 2014. (See table)

While analysts think a major turnaround is unlikely, some

fund managers see a stock picker's market.

Economic growth in Southeast Asia is likely to moderate to

4-5 percent in 2016, said Gillian Kwek, portfolio manager of

Fidelity International's ASEAN fund.

"The drivers for the next 12-18 months will be very

stock-specific," Kwek said.

"Hence, I will be spending more time on individual companies

and their stock price drivers, rather than trying to achieve

fund outperformance through top-down bets."

The fund's biggest exposures are to banks including

Singapore's DBS Group and telecommunications companies

including Singapore Telecommunications and

Telekomunikasi Indonesia. These stocks all have below

median price-to-earnings ratios.

Despite a patchy economic outlook for the region, long-term

urbanisation trends in Southeast Asia's developing economies

remain intact.

Stocks that benefit from infrastructure investment are a

good bet, said Mark Mobius, executive chairman of Templeton's

Emerging Markets Group.

"One investment theme will be focused on infrastructure with

investments at the local level buttressed by investments by

China and Japan in the areas of railroads and roads, in addition

to power plants," he said.

Among the Templeton ASEAN fund's top 10 holdings are Ayala

Corp. in the Philippines, whose operations include

telecommunication and water services.

It also includes cement manufacturer PT Semen Indonesia

and Singapore-based Keppel Corp., who has

businesses that focus on environmental engineering and power

generation.

"All the Southeast Asian markets will benefit, but the most

exciting at this stage are Thailand and Vietnam," Mobius said.

Net foreign buying (selling) of overall sharemarket ($mln)

Year Indonesia Thailand Philippine Vietnam

2009

1,001 1,073 318 123

2010

1,543 1,648 759 674

2011

1,736 1,200 59

(144)

2012

1,172 2,148 2,340 142

2013

(1,521) (5,453) 332 262

2014

3,566 (1,029) 1,180 97

2015

ytd (1,320) (2,890) (1,020) 222

Source - Thomson Reuters Eikon, local stock exchanges

(Reporting by Viparat Jantraprap and Nichola Saminather;

Editing by Sam Holmes)