We're going to take a closer look at the markets of the region's main emerging countries: Indonesia, Malaysia, the Philippines, Thailand and Vietnam. Following MSC methodology, only Malaysia, the Philippines and Thailand were included in the MSCI Emerging Markets index when it was created in 1988. Indonesia joined the index the following year. Vietnam is included in the Frontier Markets.

They represent a population of around 600 million in 2023. This region, more maritime than continental, is positioned at the crossroads of international trade. The countries benefit from attractive tax policies and competitive labor costs, lower than in China. This attracts large companies looking to reduce their costs. As a result, the five countries have enjoyed average annualized GDP growth of 4.84% since 2000.

Source: International Monetary Fund

Nowadays, they are the winners in the political-economic rivalry between China and the United States. Southeast Asia has the potential to ride the same wave of economic prosperity that lifted the four Asian Tigers — Taiwan, South Korea, Hong Kong, and Singapore — during the 1970s and 1980s, thanks to American and Japanese investment. Thus, they stand to thrive in this dynamic region.

However, we point out that countries with the highest GDP growth rates tend to have the lowest stock market returns. There are several reasons for this. On the one hand, over-optimistic market expectations may come up against a less attractive economic reality, leading to disappointment on the part of investors. On the other hand, economic growth can sometimes be achieved through companies relocating to the country, which does not benefit local stock markets. Finally, a deliberately weakened currency may well stimulate exports and thus GDP growth, but it can also significantly reduce the value of returns when converted into dollars, penalizing international investors.

Indonesia

  • Population: 273 million
  • Average annual growth since 2010: 4.74%/year
  • Capital: Jakarta
  • Major market capitalizations: banks, industrial conglomerates
  • Characteristics: dominant position in the nickel sector, world's No. 1 exporter

iShares' ETF replicates the MSCI Indonesia Net Total Return, which tracks the performance of large and mid-cap stocks on the Indonesian market. The tracker, which covers 85% of the country's $135 billion equity market, has decreased by 1.39% since January 1. The index's sector breakdown is heavily concentrated around financials (60%), followed by materials (11.17%). PT Bank Central Asia Tbk is the index's leading commercial bank, accounting for over 27% of the index.

Adaro Energy is a multi-purpose conglomerate that operates mainly in the energy and mining sectors, in particular coal mining. In addition, the company offers a wide range of mining-related services, including trading, transportation, logistics, port management and cargo handling. It also extends to areas such as agriculture, construction, energy supply, water treatment, forestry and industry. Its share price has risen by 64% since January 1.

Key figures:

  • EBITDA 2023: $2.1 billion
  • ROE 2023: 26.62
  • PER: 6.11x
  • Capitalization: $7.81 bn

Malaysia 

  • Population: 34 million
  • Average annual growth since 2010: 4.54%/year
  • Capital: Kuala Lumpur
  • Major market capitalizations: banks, utilities
  • Characteristic: the island of Penang is divided between tourism and industrial zones. Intel, AMD and Hitachi set up assembly plants in 1972. Malaysia holds 7% of the global semiconductor market, ranking 9th worldwide.

The iShares tracker follows the MSCI Malaysia Index, which measures the performance of large- and mid-cap Malaysian equities. The index, which covers 85% of the country's equity market with a capitalization of $118 billion, has risen by 24.20% since January 1. The index's sector breakdown is heavily concentrated around financials (43%), followed by utilities (14%). The leading index holding is Public Bank, with 13% of the index and a market capitalization of 19 billion euros.

Malaysia Airports Holdings Berhad is an investment company that manages airport activities in Malaysia and abroad. The Malaysian segment includes airport services, agriculture, horticulture, hotels and maintenance. Abroad, it focuses on airport maintenance and services. The company manages a total of 39 airports in Malaysia, including five international ones, and an international airport in Istanbul. It is also involved in agriculture, with the cultivation of oil palms, manages the Sama-Sama hotel and associated express services in the KLIA airport terminals, and provides facilities management and technical maintenance services.

Key figures:

  • EBITDA 2023: $470M
  • Net margin 2023: 11.05
  • Net debt/EBITDA: 0.64
  • PER: 22.6x
  • Capitalization: $4.18bn

Philippines

  • Population: 112 million
  • Average annual growth since 2010: 5.24%/year
  • Capital: Manila
  • Major market capitalizations: industry, finance and real estate
  • Characteristics: notable development in telecommunications, BPO, finance. Fast-growing sectors include fintech, e-commerce and healthcare services, driven by technophile youth.

The ETF closely tracks the MSCI Philippines IMI 25/50, encompassing almost the entire floating market capitalization of the Philippines, valued at $54 billion. Since the beginning of the year, this index has gained 13.04%. It shows a marked sector concentration, dominated by industry with 32%, followed by the financial sector with 28%, and real estate with 21%. Its three main holdings are International Container Terminal Services (16%) a port operator; BDO Unibank (14%) a bank; SM Prime Holdings (12%) a property developer.

International Container Terminal Services, based in the Philippines, is an independent container terminal operator with worldwide port concessions. Its activities, focused on cargo handling and related services, are divided into three regions: Asia (including Manila, Indonesia and China), EMEA (with operations in Poland, Georgia, Croatia, Madagascar, Pakistan, Cameroon, Iraq, etc.), and the Americas (covering Brazil, Ecuador, Argentina, Mexico, Colombia and Honduras). The company manages 32 port terminals in 19 countries.

Key figures:

  • EBITDA 2023: $1.5 billion
  • Net margin 2023: 21.42
  • Net debt/EBITDA: 2.08
  • PER: 19.3x
  • Capitalization: $14.61 bn

Thailand

  • Population: 66 million
  • Average annual growth since 2010: 2.57%/year
  • Capital: Bangkok
  • Major market capitalizations: energy, consumer staples, communication services
  • Characteristics: manufacturing/tourism attract FDI, no. 1 producer of natural rubber, major rice producer/exporter

The tracker replicates the MSCI Thailand Index, which covers around 85% of the Thai equity universe, valued at $114 billion. Major market capitalizations are concentrated in the energy, consumer staples and communication services sectors. The top three holdings are CP All (9%) in retailing; PTT (8.6%) the national oil giant; Delta Electronics (8.5%) manufacturer of electronic equipment.

CP All Public Company Limited manages a variety of commercial operations, including 7-Eleven franchise in the country, in addition to multiple shopping centers. It also offers franchising, bill payment and banking services, and produces and sells convenience foods. In addition to retail equipment, CP All diversifies into food production, financial services, education, information, marketing and logistics.

Key figures:

  • EBITDA 2023: $2.3 billion
  • ROE 2023: 17.46
  • Net debt/EBITDA: 4.62
  • PER: 25.2x
  • Capitalization: $17.78 bn

Vietnam

  • Population: 98 million
  • Average annual growth since 2010: 6.03%/year
  • Capital: Hanoi
  • Major market capitalizations: real estate, financials, consumer staples
  • Characteristics: Very important agricultural sector, third largest oil producer in Southeast Asia, very important manufacturing sector, especially textiles.

The fund's investment objective is to track the performance of the FTSE Vietnam index, itself designed to reflect the performance of the shares of Vietnamese companies listed on the Ho Chi Minh Stock Exchange. The tracker has seen its share price fall by 3.36% since the beginning of the year. Its main holding is Hoa Phat Group (15%), a steel giant.

FPT is a conglomerate operating mainly in three areas: technology, telecommunications and education. In technology, the group offers digital services for sectors ranging from finance to energy and healthcare, while producing software, microcircuits and marketing electronic equipment. In telecommunications, the company provides Internet access, streaming services via FPT Play, online publications and advertising. Finally, in education, the company manages a range of educational institutions, from elementary school to universities, including online vocational training programs.

Key figures:

  • EBITDA 2023: $450.6 M
  • ROE 2023: 28.17
  • PER: 26x
  • Capitalization: $8.11 billion

Global index: Global X Southeast Asia ETF (ASEA )

The ASEA ETF is provided by Global X and is designed to track the FTSE/ASEAN 40 Index, which in turn tracks the performance of the 40 largest companies in the five ASEAN regions: Indonesia, Philippines, Singapore, Malaysia and Thailand. As a result, Vietnam is not included in the index, to the detriment of Singapore, which is a developed country. The ETF has gained 15.24% since January 1. Largely exposed to the financial sector (60%), its top five holdings are banks.

All in all, in spite of the apparent dynamism of local financial markets driven by recent economic measures China, the major indexes have performed modestly over the past few years. That being said, it's important to recognize some of the region's companies are showing considerable potential. These nuggets play to each country's strengths, and may represent more long-term opportunities for investors.