Indonesia stocks approached a record high on Thursday after inflation data stoked expectations the central bank will keep its interest rate at a record-low next week, while Thai stocks hit a fresh 22-month high.
Analysts said they expected further stock market gains in Southeast Asia's two biggest economies, citing scattered signs of economic strength, solid earnings growth and relatively benign price pressures underscored by data on Thursday.
Nick Cashmore, Indonesia country head at CLSA Asia Pacific Markets, said the rise in Indonesia's stock index did not mean its stocks were overvalued.
"It still has the opportunity to grow," Cashmore said, citing strength in domestic demand and commodity prices across the resource-rich Indonesian archipelago.
Data released on Thursday showed Indonesia's annual inflation slowing in March to a below-forecast 3.43 percent, adding to its aura as an emerging market darling bestowed with low rates, subdued inflation, strong growth and political stability.
At 0800 GMT, Indonesia's benchmark stock index was up 1.83 percent at 2,828.05, just shy of a record 2,838.47 set on Jan 14, 2008, and building on last year's nearly 90 percent gain.
The rally in Jakarta pushed its gains for the year to 11.5 percent, Asia's best performer. Investors snapped up stocks seen as beneficiaries of domestic growth, pushing Astra International up 5.5 percent. Both stocks hit record highs.
Ikhsan Binarto, a market analyst at PT Optima Sekuritas, however, expects the index to add up to 25 percent by year-end.
Government bond yields were little changed after the inflation data. Ten-year Indonesian debt yielded 9.10 percent. The rupiah, Asia's second-strongest currency this year after Malaysia's ringgit, firmed to 9,057 per dollar from 9,072.
Against its Southeast Asian peers, Indonesia looks pricey. Its stocks trade at 14 times estimated 2011 earnings, cheaper than Malaysia's 15.7 times but more expensive than the Philippines at 13.1 and Thailand's 11.6, which is still Asia's second-cheapest after Pakistan despite a month of foreign fund-driven gains, according to Thomson Reuters data.