Keith Ferguson, Fidelity's chief investment officer for the Asia-Pacific region, says Southeast Asia reforms are finally paying off with more efficient companies, stronger financial institutions, and greater corporate transparency. Growth prospects were already solid thanks to strong domestic demand, and the U.S. recovery will be a boon for exports.
Why did Thailand top the rankings? In the past few years, key sectors such as banking and cement have seen consolidation and staff cutbacks, producing higher margins. And many companies have brought in foreign management expertise. At the same time, Thai consumers are shelling out for everything from designer jeans to new cars--auto sales might grow 30% this year--and the residential-property sector is finally showing signs of recovery. The result: In the first quarter, foreigners were net buyers of $550 million worth of Thai stocks, after selling $848 million over 2000 and 2001.
Ferguson saw the Southeast Asia recovery coming late last year and sent his analysts on a search for good companies. "We looked where foreigners were underweight and where earnings looked attractive again, and we spent time and focused on it," he says. In Thailand, he picked up property developer Land & Houses, Siam Cement, Siam City Cement, and bank stocks.
Can this winning streak continue? With Thailand's banks and blue chips having already enjoyed a good run, Ferguson says smart investors should start looking at mid-cap stocks such as Delta Electronics Inc., poised to benefit from stronger export demand. Across Southeast Asia, Ferguson sees plenty of value: Indonesian stocks are trading as low as seven times 2002 earnings, Malaysia's 17, and Thailand's 14.
But a word of caution. Although the region's markets have shown resilience, its economies are still tethered to the U.S. If the American recovery stalls, the promising start to Southeast Asia's year will quickly lose steam. By Frederik Balfour in Kuala Lumpur