SINGAPORE (Jan 30): Southeast Asian equity markets, already suffering from foreign outflows, are now at the brink of witnessing bear markets for some of its members as the coronavirus-induced sell-off continues.
The risk aversion caused by the deadly virus has pushed the main equity benchmarks of Thailand and Malaysia to within 3% of what would mark a 20% fall from their peaks. The main Philippine gauge entered into a correction after its president cracked down on some of the nation’s biggest businesses.
“The outbreak of Wuhan virus is a shock that is adding to the pains of Southeast Asia equities due to the region’s trade and tourism linkages with China,” Nirgunan Tiruchelvam, head of consumer equity research at Tellimer, said by phone from Dubai. “Asean stocks may see more pain before any relief,” he said.
The new virus has killed at least 132 people and infected nearly 6,000 in China, overtaking the official number of infections in the country during the SARS epidemic. Governments have tightened international travel and border crossings with China in their efforts to stop the spread of the pneumonia-like illness.
The Bangkok SET Index and FTSE Bursa Malaysia KLCI Index are now down more than 17% each from their record highs in 2018. The Philippine Stock Exchange PSEi Index has fallen more than 10% from last year’s high. Southeast Asian equity markets have seen a net foreign outflow of US$2.4 billion ($3.3 billion) over the last 12 months, on withdrawals from these three countries.
The retreat contrasts with broader regional and global markets, which had surged on global trade hopes from late summer until the health concerns in China became pronounced.
The prospects for any quick improvement for Southeast Asian stocks have dimmed as the outbreak’s “short-term negative impact” compounds the drag from expectations for low single-digit earnings growth in 2020, said Suresh Tantia, an investment strategist at Credit Suisse Group AG in Singapore.
“Southeast Asian markets could continue to underperform their north Asian peers as they benefit less from global cyclical recovery,” he said. “Country specific issues are also hurting their growth.”
Among domestic factors, Thai equities are suffering from a delay in the nation’s US$105 billion budget, while Malaysian stocks have been hit by Prime Minister Mahathir Mohamad’s steps to rein in debt and restructure state-linked firms. Philippine stocks have been pressured by President Rodrigo Duterte’s recent attempts to renegotiate contracts with the nation’s largest conglomerates.
“There will still be a lot of uncertainty as nobody knows when and how will this current virus outbreak will end,” said Piti Tantakasem, chief executive officer of TMB Bank Pcl.
