Top JPMorgan Asean fund has Indonesia, banks as 2023 picks

Indonesian stocks and Southeast Asian banks are the preferred picks for a top-performing JPMorgan Chase & Co. fund focused on the region.

High-for-longer commodity prices, economic reopening and a revival in tourism will buoy the overall market in 2023, Stacey Neo, co-manager of the JPMorgan Asean Equity fund, said in an interview. “Foreign ownership continues to be very low in this region given the outflows we’ve seen historically,” and there’s potential for continued upward earnings revisions based on the results season, she added.

Southeast Asia has been one of the few bright spots in global equities in 2022, as higher commodity prices supported exporters such as Indonesia and rising rates were seen as good for banks, which account for about 40% of the benchmark MSCI Asean Index’s weight. Indonesia’s gauge is among the top-performing major measures globally, near a record high, while the MSCI AC World Index is down 22%.

The Singapore-based executive particularly likes banks in Indonesia and Singapore that will benefit from margin expansion in an environment of rising interest rates and “sticky” inflation, as well as higher loan demand and increased adoption of technology.

PT Bank Central Asia has one of the lowest loan-to-deposit ratios regionally and can “lend without compromising,” while DBS Group Holdings Ltd. has a large current-account-savings-account franchise, she said. The firms, the top two holdings of the fund as of end-September, reported a jump in latest-quarter earnings.

Forward earnings estimates for the MSCI Asean gauge are up almost 5% since the end of March, with financials seeing one of the biggest sectoral upgrades in the last three months as downgrades continue for global stocks.

Neo’s $1.45 billion fund is the only one to deliver a positive return among 14 offshore Asean-focused products, according to Bloomberg-compiled data. It has returned 0.4%. The Southeast Asia benchmark is down 13% and the Jakarta Composite Index is up more than 7%.

Most Southeast Asia economies are forecast to grow more than 4% in 2023 as economies fight inflation and continue to rebound from the pandemic.

Neo also likes electric vehicle-related stocks in Indonesia as the country develops its vast nickel reserves and plans to subsidize purchases of electric cars next year. Overall, China’s eventual reopening will be another catalyst for the region, particularly for Thailand, Neo said. The world’s second-largest economy is Southeast Asia’s biggest trading partner and accounts for more than 20% of tourists.

The fund has its biggest overweights in Indonesia and Vietnam, and is underweight Malaysia and the Philippines.

Foreign funds have poured a net $5.6 billion into Indonesian shares this year, poised to be the biggest annual inflow on record. – BLOOMBERG