The tide of hot money is turning in favor of Thailand, Indonesia and the Philippines.

Overseas investors have bought a net $1.6 billion of shares in the three Southeast Asian countries in March, poised for the biggest monthly inflow since January 2013. That follows $4.2 billion of withdrawals in the fourth quarter, which matched the largest outflow since Bloomberg began tracking the data in 1999.

The combination of easing political unrest in Thailand, a shrinking current-account deficit in Indonesia and slowing inflation in the Philippines is convincing foreign investors that the economies are strong enough to weather reduced Federal Reserve stimulus. Equity gauges in the three countries are trading at valuations at least 9 percent cheaper than their 2013 peaks even after climbing an average 9.2 percent this year.

“The rapid rise in these markets is merely a catching up from last year’s decline caused by hot-money outflows,” David Ross, a managing director at Chevy Chase Trust in Bethesda, Maryland, which oversees about $17 billion, said by e-mail. He predicted further gains in Indonesian and Philippine shares, while saying the rally in Thailand may be near an end. 

Indonesia’s central bank estimates the nation’s current-account deficit will narrow to 2.5 percent of gross domestic product this year from about 3.3 percent in 2013, while Philippine inflation slowed in February for the first time in six months. Thailand’s government agreed to end a state of emergency in Bangkok Wednesday following months of anti-government protests and clashes that killed 23 people.

The Jakarta Composite Index has climbed 13 percent this year, while the Philippine Stock Exchange Index gained 9.7 percent. Thailand’s SET Index added about 5 percent as tourism-related companies including Central Plaza Hotel Pcl and Airports of Thailand Pcl rallied. The MSCI Emerging Markets Index has lost 5.2 percent.

That’s a turnaround from the second half of 2013, when the Fed’s move toward paring its record stimulus program dragged down the Southeast Asian indexes by at least 8.9 percent, making them three of the world’s four biggest losers among global equity gauges tracked by Bloomberg.

The Federal Reserve said Wednesday it will look at a wide range of data in determining when to raise its benchmark interest rate from zero, dropping a pledge tying borrowing costs to a 6.5 percent unemployment rate. The Fed also repeated that it will reduce asset purchases “in further measured steps at future meetings.”

“TIP markets have shown impressive rebounds recently with the return of foreign funds,” Vana Bulbon, the chief executive officer of UOB Asset Management (Thailand) Co., which oversees about $7.2 billion in Bangkok, said in an interview on March 18.

The rally is vulnerable to a slowdown in China, according to Samsung Asset Management Co. The world’s second-largest economy, which buys at least 9 percent of overseas shipments from the three Southeast Asian countries, may expand about 7.5 percent this year, the weakest pace since 1990, according to economists in a Bloomberg survey.

China’s retail sales and industrial production trailed estimates in February, while home prices in some of the country’s largest cities rose last month at the slowest pace since 2012. A closely-held developer collapsed this month while the country suffered its first onshore corporate bond default.

The potential for contagion in China’s financial markets “is my biggest concern right now,” Alan Richardson, whose Samsung Asean Equity Fund outperformed 96 percent of peers tracked by Bloomberg during the past 12 months, said by phone from Hong Kong. (Bloomberg)