China and India are Southeast Asia’s big fat neighbours. They always steal the limelight when it comes to investing in Asia. The capitalisation of the MSCI Southeast Asia index, which includes many of Asia’s other fast-growing economies, is just 2 per cent of that of the global index. But it has outperformed its global peer by a resounding three times over the past three years. What’s not to like?

Past performance is, of course, not an indicator of the future. Southeast Asian equities now look expensive. Macquarie estimates that profit margins are starting to peak. Moreover, individual countries have their own particular challenges that investors should bear in mind for 2013. Consider the Philippines. Its benchmark index trades on 18 times forward earnings, the highest in a decade. Yet the country’s economy may stall from here. Strong domestic demand and a low base will probably push up inflation next year, for example, which would argue for a reversal of Manila’s relatively loose monetary policy. As for Indonesia, weak prices for soft commodities are pressuring its current account and accentuating the risks of currency instability and capital outflows. The Jakarta market has underperformed; that could well continue in 2013.

Malaysia was the largest market in Asia after Hong Kong for initial public offerings in 2012. Felda, a palm plantation, raised $3bn in a listing in June; even so, cornerstone investors took the largest chunk. Its economy is also facing a fall in soft commodity prices. And Malaysian consumer debt remains the highest in the region at more than three quarters of economic output. So economic growth is sensitive to any future rate rises. Thailand is suffering from falling exports and a consumption story boosted onlyby temporary subsidies.