Guess which ASEAN country is most exposed to capital flows reversal

Will Singapore be spared?

According to Morgan Stanley Research Note of ASEAN Equity Strategy, there is a potential reversal of capital flows into emerging markets which could dramatically reduce EMs’ access to international financial markets for a considerable period of time. 

"We explore this theme further, assessing its impact on ASEAN markets. In a Sudden Stop of Capital Flows scenario, Indonesia is likely to be the most vulnerable equity market within ASEAN. Singapore is likely to be least vulnerable, though its property stocks are amongst the most vulnerable. Surprisingly, we expect Banks’ earnings to be resilient," MS Research noted.

Here's more:

Which ASEAN economies are exposed to such reversals? In an environment where current market volatility from concerns regarding QE taper continues for longer, we think Indonesia is most exposed within ASEAN, followed by Thailand.

Meanwhile, one should watch out for the impact of rising rates in Singapore; Malaysia looks relatively less exposed.

Which ASEAN countries have the biggest downside risks? Indonesia’s and Thailand’s equity markets are trading at 18% PER premium to their 2008-09 average. Singapore’s valuations are similar to its 2008-09 average and hence we see limited downside risk.

Which stocks are most/least vulnerable? Based on our bottom-up analyst’s sensitivity analysis of 2014 earnings, comparison with average PBs of 2008-09, and analyst ratings, we conclude that ASII.JK, BBNI.JK, BSDE.JK and CTDM.SI are most vulnerable and UNTR.JK, PTTE.BK, UOBH.SI and OCBC.SI are least vulnerable in a sudden stop scenario.