GSIS leads funds buying binge as Asian markets weaken

Pension fund Government Service Insurance System (GSIS) sees huge opportunities from record foreign outflows. 

As the Philippine Stock Exchange index surged to a record in April, the GSIS was selling, and when the index has fallen every month—its longest losing streak in 13 years—the fund started purchasing shares, GSIS President Robert Vergara said.

GSIS had spent a third of its annual equities budget in a P5-billion buying spree in August alone, he said.

“This year, we were really behind our investment program, we were actually taking profit as the market was going up,” Vergara said.

Foreign money managers sold a record $1.28 billion of the nation’s shares in the three months through September, fueling the stock index’s biggest quarterly loss in seven years, as a slowdown in China’s economy roiled global markets and traders boosted expectations the US will raise interest rates.

While the performance of Southeast Asian equities was as hazy as in most part of the region under a blanket of toxic haze in the past few weeks, analysts said there are still opportunities for buyers across the bourses of the region.

Major stock markets in Southeast Asia had been underperforming year-to-date compared to the same period last year, mainly due to the prospect of rising US interest rates, waning investor appetite for risk, falling commodity prices, and slowing economies.

Companies from Indonesia, Malaysia and Singapore have scrapped initial public offerings and cautious of launching deals in stock markets that are down between 4.7 percent and nearly 20 percent so far this year, with Vietnam as the exception, as its market has posted a 3.1-percent growth.

The UOB Asset Management said Southeast Asian economies continue to face macro headwinds from slowing economic growth and weakening currencies.

However, the UOB does not see a repeat of the 1997 Asian financial crisis, as foreign reserves, external debt and banking sector health are all stronger now.

Responding to a slower economic outlook, several Southeast Asian economies, like Thailand and Indonesia, have introduced fiscal stimulus measures.

The UOB said that, while these measures are still relatively modest, they are steps in the right direction to improve business confidence and consumer demand, and ultimately boost economic growth in these countries.

Going forward, the pace of government spending is crucial to driving economic growth in markets like Indonesia, Thailand and the Philippines, the UOB said.

Among individual econ-omies, the UOB maintains an overweight position in the Philippines and Singapore. In-donesia and Thailand are kept at neutral, whereas Malaysia is maintained at an underweight exposure, due to its political headwinds and heavy expo-sure to commodities.

As for sectors in the re-gion, the UOB is currently overweight on the health-care, telecommunication ser-vices, and real-estate sectors; underweight on the energy, financials and consumer dis-cretionary sectors; and neu-tral on the consumer staples, industrials, materials and utilities sectors.

Morgan Stanley Research said investors should focus on Southeast Asian stocks that have been out of favor in the last four to five years, have further capitulated in the recent market correction and are showing stability and im-provement in fundamentals.

In an environment of lower growth in the long term, Morgan Stanley believed that growth stocks are likely to continually disappoint, in-stead companies, which have potential to generate growth on their own through cost and balance-sheet restructur-ing, consolidation or merging and acquisitions, improve-ment in dividends and free cash flow, are likely to attract investor attention.

Morgan Stanley also liked ideas that offer relative resilience in an uncertain environment, thus, recom-mending companies that have a high probability of man-aging through a challenging environment and productive growth.

With those criteria in mind, Morgan Stanley rated the Singapore equity market as most preferred market in Southeast Asia, particu-larly Singapore an govern-mentlinked companies for their reasonable probability of restructuring driven by con-solidation, internationaliza-tion and divestment.