US policies under the administration of President-elect Donald Trump may determine the fate of Southeast Asian markets this year, according to some asset managers.
His trade and fiscal policies may stoke inflation again and lead to a slower and shallower US rate cut cycle and a stronger dollar, says Vivian Lin Thurston, partner and portfolio manager of global equity at William Blair Investment Management.
“This would impact the Southeast Asian currencies, inflation and consumer spending adversely,” she tells Asia Asset Management.
Higher US tariffs on imports from China and continued trade tensions between the world’s largest and second largest economies could make Southeast Asia a credible alternative for firms looking to shift supply chains away from China, says James Thom, senior investment director of Asian equities at abrdn.
“Southeast Asia has a cost advantage, strategic location, an increasingly skilled and growing labour force and supportive government policies,” he says.
Nevertheless, he advises investors to be cautious as the region has a large trade exposure to both China and the US.
Investment themes
Thurston says the start of the US rate cut cycle and “sensible” structural reforms in some Southeast Asian countries were key investment themes in the region last year.
US rate cuts allowed countries like Indonesia, Thailand and the Philippines to also reduce borrowing costs, which helped lower debt burdens, accelerate consumer spending and strengthen corporate earnings.
Meanwhile, structural reforms have created attractive investment opportunities in infrastructure and energy transition related industries.
“This is especially evident in Malaysia as the country has become the data centre and artificial intelligence supply chain hub in the region,” Thurston says.
Sweta Dugar, Franklin Templeton’s head of institutional business for Southeast Asia, pointed to the rise of alternative investments as a key theme in the region last year, one which she expects to continue gaining traction into 2025.
She says Southeast Asian investors are underinvested in private assets, and predicts demand for private debt, private equity secondaries and infrastructure among investors seeking alpha-generating strategies for a more resilient portfolio.
Thom sees rapid adoption of AI and increasing need for cloud computing as key themes in Southeast Asia.
“We have seen rising data centre builds across the region, spreading out from Singapore to the rest of the bloc. Vietnam has also eased foreign ownership curbs on data centres, which is likely to result in more capital expenditure in this sector. We see this trend continuing over 2025, with flow-through benefits to the entire supply chain and potentially backed by further policy support,” he says.
According to Thom, markets like Indonesia and the Philippines have reached or are nearing attractive valuation levels and yet continue to deliver solid underlying growth.
“As the margin of safety in stock prices begins to widen, we can increasingly be confident of a positive outlook for returns,” he says.
