(Bloomberg) -- A rally in palm oil and other commodities will weaken the U.S. dollar relative to emerging-market currencies this year, and that will help Southeast Asian equities outperform their regional peers, according to Aberdeen Standard Investments.
Palm oil futures rallied 35% last quarter amid supply concerns from Indonesia and Malaysia, the world’s biggest producers of the commodity. Bharat Joshi, Aberdeen’s investment director in Jakarta, sees their price rising further as the industry is entering a “resting” period -- when trees produce less after a period of high yield -- that could last one or two years.
“This year will be the year of emerging markets, thanks to the rally in commodity prices,” Joshi, who helps manage Aberdeen’s $670 billion in assets, said in an interview. “The only black swan for this forecast is if the Fed raises interest rates to contain inflation, which I think is quite unlikely considering 2020 is an election year in the U.S.”
Joshi said he favors stocks in Indonesia, the Philippines and Vietnam. He expects Indonesian companies to register 10% to 15% earnings growth this year.
Here are other comments from Joshi:
- Aberdeen prefers Southeast Asian equities over North Asian markets
- A slowdown in China that wouldn’t be countered by fiscal stimulus could derail the optimistic outlook for Southeast Asian markets
- Vietnam’s corporate earnings are seen growing 15%-18% this year, while the rate for those in the Philippines may be in the low teens
- Investors are avoiding Malaysian stocks because of political issues, and Thailand has become unappealing due to its strong currency
- Infrastructure spending will support Philippine shares, while the Vietnamese economy will benefit from foreign direct investment as a result of the U.S.-China trade war
- Among Indonesian equities, Joshi’s top picks are those in the banking, commodity and health-care sectors
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