KUALA LUMPUR: Market sentiment in Southeast Asia has improved of late, due to renewed confidence in the global economy and the strengthening of emerging market (EM) currencies, RHB Investment Bank Bhd (RHB IB) said.

The sentiment was also boosted by the reopening of China, which should enhance the growth prospects of certain small-cap companies in Asean, RHB IB added.

"With the weakening of the US dollar and the brewing expectation of a peaking Fed Funds Rate in 2023, the improved investor sentiment could potentially spur fund flow into EM counters, where valuations for the rate-sensitive growth names have bottomed-up.

As such, we see compelling opportunities in the small-cap space," its analyst Lee Meng Horng said following the bank's third instalment of RHB Small Cap Corporate Access (SCCA 2023) last week.

The event featured 16 listed companies from Indonesia, Malaysia, Singapore and Thailand, and was attended by about 130 fund managers and analysts across the region to explore new investment ideas in the small-cap space and gain insights from these corporations.

Lee said the divergence of the state of the economy in China post reopening versus the decelerating global economic growth could lend the support to global demand and benefit Asean players.

Most of the companies featured in SCCA 2023 agreed on the potential challenges that were exacerbated by decreasing economic growth, high inflation and volatile exchange rates, the escalation of input costs, and certain demand uncertainties.

However, they still saw growth opportunities with differentiated strategies, country and industry exposure, domestic-demand growth, relatively low bases and production capacity relocation exercises taking place, Lee said.

The SCCA 2023 featured firms from various sectors including healthcare, industrial products, oil and gas, technology, consumer products, consumer discretionary, financial services, construction and REITs.

A few names that caught participants' interest were Indonesia's ceramic tiles manufacturer Arwana Citramulia, Wah Seong Corp Bhd, Singapore's Bumitama Agri and Index Living Mall, Thailand's largest home furnishing player.