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JAKARTA (TheInsiderStories) – The threat of a U.S-China trade war has the potential to cause additional damage to the globally connected North Asian economy, yet it will make Southeast Asian stocks more attractive.

“ASEAN will relatively play as a safe haven during a trade war,” said Nader Naeimi, head of market dynamics at AMP Capital Investors Ltd., Sydney in the recent report.

Stocks with domestic market focus, with relatively low exports to the U.S, and the high dependence on commodities are the reason for owning Southeast Asian stocks today.

Domestic shares such as banks, real estate, and telecommunications companies have a much larger proportion of MSCI Inc. stocks. Southeast Asia than the broader Asian index. With its diversity, investors need to use a smarter approach to make a profit in Southeast Asia.

Kelvin Tay, head of UBS Wealth Management’s regional investment, argued that Southeast Asian stock exchanges are looking more attractive at the moment as they are more diversified and do not rely on exports as in North Asia. He admitted UBS is currently interested in Indonesia and Thailand because it has a valuation that looks more attractive than North Asia.

“Indonesia’s fundamentals are changing, the allocation of infrastructure funding by the government has increased and we are beginning to see the effect of its derivatives that will be felt this year,” Tay said.

UBS estimates that inflation in Indonesia will be well under control and GDP growth of around 5.3 per cent this year, higher than last year at 5 per cent in 2017.

“The government looks very stable and oil prices are at an ideal point at the moment, not too low and not too high for Indonesia,” Tay added.

Meanwhile, according to him, Thailand looks attractive because the tourism industry is strong and not many possibilities of weakening.

Expenditures for some transport infrastructure projects are expected to increase. “If you put it all together, Thailand is one of the markets that looks quite attractive.”

Nomura Holdings strategist Chetan Seth has a slightly different view. According to him, ASEAN has a strong macro momentum base with revenue that still lags behind its macro growth. Currently, Seth says, Nomura tends to act tactically in the Singapore and Malaysia exchanges, still slightly entering Indonesia and Thailand, but neutral against the Philippines.

In the long term, he claims to be more like countries with strong and sustained revenue growth, countries with special themes, vulnerability to global liquidity flows that are lower than average, political stability / democratic conditions and reform impetus. Based on these criteria, Seth placed the Philippines and Indonesia at the top position in ASEAN.

Camilla Goh, executive director of equity research at Bank of Singapore, said at the moment she is wary of the potential impact of the global central bank’s unprecedented policy on smaller ASEAN markets, making it more selective in selecting stocks.

“We prefer more liquid blue chips with a stronger profit growth prospect,” Goh said. She pointed out, Singapore’s financial sector, stocks supporting Thailand’s domestic consumption recovery, and shares of beneficiaries of infrastructure development in Malaysia.

Somehow, one thing to be concerned is the development of the Indonesian property sector, which traded with attractive valuations and received moderate expectations from investors, experienced poor performance over the past year.

Completing the above opinions, Daniel Morris, senior investment strategist at BNP Paribas Asset Management highlights the ASEAN market from a trading and currency standpoint – assuming the US dollar continues to depreciate against the EM currency. “Equity markets of Indonesia and the Philippines are relatively less dependent on US sales,” he said.

The defensive sectors of the US-China trade war, is a sector that generates revenues primarily from domestic demand, such as finance and energy.

Written by Elisa Valenta, email: elisa.valenta@theinsiderstories.com

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