Rising Stars: Uncover the Next Big Winners in Southeast Asia's Stock Explosion

As companies reconfigure their global supply chains, foreign direct investment (FDI) into Southeast Asia continues to trend upwards, with net inflows reaching approximately $85 billion so far this year. According to Bloomberg data, there has been an increase in capital inflows across all Southeast Asian markets over the past three quarters.

The region has consistently demonstrated resilience and a reliable economic performance record. Apart from the COVID-19 outbreak and its recovery period during 2020-21, three out of the five markets in the region have maintained GDP growth rates above 5% since 2017. Consensus estimates project that the economies of the Philippines and Vietnam are expected to grow by about 6% this year, making them among the fastest-growing countries globally, second only to India's forecasted 7%. Malaysia and Indonesia are expected to achieve 5% growth, while Thailand has the lowest forecast at 2.5%. This year, the region's quarterly economic performance has shown resilience, with almost all markets (except Indonesia) posting their fastest growth rates in the last four quarters, with Indonesia's quarterly GDP growth stabilizing around 5%.

CITIC Securities highlights that on one hand, the Southeast Asian economy is expected to continue improving, with a focus on the developments in Indonesia, Vietnam, and Malaysia. On the other hand, as Southeast Asia continues to accommodate international industrial transfers and experiences rapid growth in the digital economy, investors are advised to keep an eye on opportunities in electronic manufacturing, automotive production, and the digital economy.

Investors are keen to identify which investment opportunities should be seized against the backdrop of Southeast Asia's strong economic potential.

Driven by demographic dividends, domestic demand expansion, infrastructure improvements, and industrial transfers, Southeast Asian economies show strong economic momentum, as evidenced by the robust profitability of regional internet companies.

From the Q3 earnings season, Sea, often referred to as "Southeast Asia's Tencent," reported a revenue of $4.328 billion, a 30.8% increase year-over-year, with its shares surging over 20% post-earnings release. Ride-hailing and delivery giant Grab saw a 17% increase in revenue year-over-year, exceeding analyst expectations and boosting its stock price nearly 15% in post-market trading in the U.S.

Furthermore, several Indian companies also showed remarkable growth, with Make My Trip's stock up nearly 150% year-to-date, continually expanding through acquisitions; and Indian IT companies like Wipro and Infosys, the first Indian company listed in the U.S., also performed well.

Investors should watch U.S.-listed Southeast Asian and Indian IT companies such as Sea, Wipro, Grab, Infosys, and Make My Trip.

The robust economic performance and strong domestic focus in Southeast Asia favor high-growth companies. Over the past five years, more than 200 companies have achieved annual revenue growth of 20% or higher. According to net income, over 300 companies have seen average annual profit growth of 20% or more. More than two-thirds of these companies are relatively small, with market caps under $500 million, with Indonesia and Vietnam leading in numbers, and the Philippines having the fewest. Vietnam’s high-growth stocks are mostly concentrated in the finance and industrial sectors, while Indonesia has a broader distribution.

While a significant portion of FDI continues to flow into traditional industries like manufacturing, Southeast Asia is becoming a global hotspot for AI infrastructure. Countries in the region are actively seeking to attract large tech investments, especially in data centers and artificial intelligence, aiming to become hubs for these technologies. Companies like Amazon, Google, Microsoft, NVIDIA, and Tencent are looking to expand their AI footprint in the region. Jensen Huang's trip to Southeast Asia is part of this context, where he is pushing NVIDIA's expansion in AI and data center sectors in the region.

This Thursday, during a signing ceremony in Hanoi, Vietnam's Minister of Investment Nguyen Chi Dung announced that NVIDIA will open an AI research and development center in Vietnam in partnership with the state-owned Viettel Group's data center, jointly promoting the development of advanced AI technologies in Vietnam. Vietnam's Prime Minister Pham Minh Chinh also attended the event. As Vietnam's largest telecom and mobile operator, Viettel Group had previously become the first Vietnamese company to establish a strategic partnership with NVIDIA in mid-2022. Before coming to Hanoi, Jensen Huang had met with Thai Prime Minister Paetongtarn Shinawatra on Tuesday and agreed to strengthen cooperation with Thailand in AI infrastructure.

Source: Bloomberg, CITIC Securities