A structural shift in the investment landscape of the Association of Southeast Asian Nations (Asean) in recent years, according to Hunter Beaudoin, analyst, manager research at Morningstar. Old economy stocks are giving way to new, technology-driven opportunities.
“The investable universe, which historically has been dominated by banks, industrial conglomerates, and telecoms, has seen a rise of companies in emerging industries, propelled by changes in consumer behaviour that accelerated during the pandemic, digitalisation, and other disruptive technologies,” he wrote in a recent report.
In particular, e-commerce, digital entertainment, and online ride-hailing companies have emerged as fresh investment prospects in the region, historically characterised by well-established, old-economy stocks.
The best examples of these companies are in Singapore, specifically consumer companies such as internet conglomerate Sea and ride-hailing super-app Grab which enjoyed rapid surges in their stock prices between 2020 and 2022, according to Beaudoin.
Elsewhere in the region, Beaudoin highlighted GoTo—a digital ecosystem formed through the merger of ride-hailing giant Gojek and e-commerce platform Tokopedia—which went public on the Indonesia Stock Exchange in April 2022.
The response of portfolio managers has been varied. Some have eagerly participated, others have shunned them, while some have added a little exposure.
The reason for caution, is that although these emerging companies offer attractive growth potential, they also carry significant risks.
“Most are not yet profitable or newly profitable, and their ability to consistently generate future shareholder returns is uncertain. They also operate in fiercely competitive and cyclical industries,” said Beaudoin.
‘It has been a wild ride for investors in these stocks,” he added.
Nevertheless, there is potential for a more diversified investment opportunity set within Southeast Asia over the long term, according to Beaudoin.
“Asen governments are actively pursuing policies that foster the growth of new-economy companies through tax incentives and investments in digital infrastructure, such as Thailand 4.0 and Vietnam’s Digital Transformation Plan,’” he said.
Meanwhile. in December 2022, the Indonesia Stock Exchange established a “New Economy Board” to spur the listing of innovative companies, leading to several green-transition-themed IPOs in 2023 such as Pertamina Geothermal Energy and Barito Renewables Energy.
Elsewhere, there are expected to be initial public offerings of unicorns such as Thai food delivery service Line Man Wongnai, Malaysian auto e-commerce platform Carsome, and Philippines financial technology app GCash.
In addition, the Asean Digital Economy Framework Agreement aims to unify the region as an “innovative, interoperable, and investable” digital hub by focusing on areas such as digital trade and cross-border e-commerce. It is expected to double the potential value of ASEAN’s digital economy from $1trn to $2trn by 2030, according to Beaudoin.
“The region’s strong fundamentals and continued support of local governments and institutions will ultimately pave the way for a more diverse investment landscape in the future,” he concluded.
