With the Fed's rate cut becoming a foregone conclusion, assets in Southeast Asia are becoming increasingly attractive, and investors are flocking to seize the enormous potential of this emerging market.

According to Bloomberg, fund managers have been steadily increasing their holdings of sovereign bonds in Thailand, Indonesia, and Malaysia over the past two months. They have also been net buyers of stocks in Indonesia, Malaysia, and the Philippines for the past three months. The inflow of funds has helped Southeast Asian currencies become the best-performing currencies in the emerging markets this quarter.

Stocks in the region have easily outperformed other stocks in the emerging markets. Four of the top five performing Asian stock benchmarks this month come from Southeast Asia, with Thailand leading the way.

Investors are beginning to realize that there are many alpha opportunities in Southeast Asia. This is due to the region being on the brink of a rate-cut cycle, attractive valuations, and supportive government policies.

The prospects for the bond and currency markets are bullish on the edge of a rate-cut cycle.

Central banks in Southeast Asia are on the brink of a rate-cut cycle. The Philippines has already cut rates in August, and some economists expect Indonesia to follow suit this week. Indonesia’s actual policy rate is currently at 4.1%, providing ample room for monetary policy easing.

Joevin Teo Chin-Ker, the investment director at Eastspring Investments Singapore, is optimistic about the bond and currency markets in Southeast Asia. He believes that high-yielding countries in the Southeast Asian region have bullish prospects for the bond and currency markets in the long term.

The actual interest rates in Southeast Asian countries are higher than a year ago, and there is further room for interest rate cuts, which is good news for the local bond market.

BlackRock believes that the market volatility this month may provide opportunities to buy bonds in Southeast Asian countries. Betting on potential interest rate cuts by the Federal Reserve and local central banks will boost the bond market in the region.

Neeraj Seth, BlackRock's head of Asian fixed income in Singapore, said that he prefers medium and long-term bonds in the Philippines and Indonesia because the central banks of the two countries have more room to relax monetary policy.

This is the golden age of fixed income in Asia, especially in emerging Asian markets. In volatile conditions, increasing the duration of the investment portfolio (i.e., the average remaining maturity of bonds) is a good strategy.

Valuation advantages and policy support provide positive prospects for Southeast Asian countries.

In addition, valuation advantages also provide positive prospects for Southeast Asian currencies.

The real effective exchange rates of Southeast Asian currencies are undervalued by 1.8% compared to the 10-year average. In contrast, Latin America, Europe, the Middle East, and Africa are all overvalued. Therefore, the valuation of Southeast Asian currencies is more attractive.

Valuations of Southeast Asian stocks are also attractive. The price-earnings ratio of the MSCI ASEAN Index is 13.6 times the 12-month expected earnings. In comparison, the five-year average price-earnings ratio is 14.7 times.

Finally, Southeast Asia is favored by companies due to its superior geographical conditions and lower labor costs.

Kenneth Tang, the portfolio manager of Nikko AM Shenton Thrift Fund, said that recent positive policy support, such as Indonesia's fiscal stimulus measures and measures to support stock ownership in Thailand and Malaysia, have also been helpful.

Editor/ping