JPMorgan says buyers in Southeast Asia are underinvested and could also be lacking out on alternatives


Signage for Thailand Stock Exchange (SET) will be displayed outside the Bangkok Stock Exchange in Bangkok, Thailand on Monday, October 26, 2020.

Taylor Weidman | Bloomberg via Getty Images

SINGAPORE – Investors may be shy of markets in Southeast Asia, but JPMorgan's James Sullivan sees medium-term opportunities in the region.

"We upgraded Indonesia, we upgraded Thailand, arguing that investor positioning in those markets is incredibly low," Sullivan, head of the company's Asia-ex-Japan equity research, told CNBC's "Squawk" on Thursday Box Asia ".

"We are examining the possibility of over $ 650 billion in overall wealth flow to emerging markets in general. In ASEAN, investors are underweight in every single ASEAN market for the first time in many, many years," said Sullivan, adding that the region doing this is "interesting … from the perspective of reality and perception".

"We see … significant opportunities for medium-term outperformance, particularly in ASEAN," said the analyst.

So far, most of the markets in Southeast Asia have been among the worst performing markets in 2020. Several economies in the region are either struggling to cope with the coronavirus pandemic or are struggling to lose vital tourism dollars as restrictions restrict international travel.

At the close of trading on Wednesday, the SET Composite Index in Thailand had fallen more than 10% since the beginning of the year, while the Indonesian Jakarta Composite had fallen by more than 9%.

The top performers in Asia this year have generally been production-driven economies in North Asia, which Sullivan says look positive over the long term.

"From a global economic perspective, we are seeing a two-tier or two-tier recovery," he said. With data continuing to show a "very constrained" service sector worldwide, manufacturing has "come back very well".

"We aim to outperform on a macroeconomic basis in China and … some North Asian markets," said Sullivan. "In the long term, we still see the manufacturing economies of China and North Asia very well."

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Katherine Clark