Reuters - BlackRock Inc, the world's biggest money manager, said improving economic indicators in Indonesia and consistent corporate earnings in the Philippines make those two countries prime hunting grounds for Southeast Asian stocks.

Indonesia has slashed its current-account deficit and tamed inflation, strengthening its previously ailing currency. In the Philippines, companies have met forecasts more often than the rest of Asia during a period of successive sovereign credit rating upgrades.

Immediate beneficiaries of economic growth include consumer, financial and infrastructure shares. These make up more than half of BlackRock's $244 million ASEAN Leaders Fund which features stocks such as Indonesian state-controlled lender Bank Mandiri Persero Tbk PT and conglomerate Astra International Tbk PT.

Southeast Asian markets saw sharp volatility last year when investors pulled out in anticipation of tighter liquidity as the U.S. Federal Reserve winds down economic stimulus. Interest has since returned, with Indonesia's main stock index rising 18 percent in dollar terms this year, the highest in Asia.

"In an environment where we are sort of pulling back on liquidity with (Fed) tapering, there was an initial shock in these countries and currencies," said head of Asian equities Andrew Swan at the Reuters ASEAN Summit in Hong Kong.

"But current account deficits are declining and trade surpluses are increasing. And that's been quite pleasing I think for many people to see that it's actually happened reasonably quickly, and that's why money is coming back."

BlackRock's Indonesian investments amounted to less than its benchmark index for most of last year. Last month, however, Swan raised the proportion of Indonesian securities in BlackRock's ASEAN fund to 20.2 percent, 1.5 percentage points higher than the MSCI South East Asia Index, according to the fund factsheet.

The proportion of Philippine securities was 8.6 percent which, at 2 percentage points higher than the benchmark, was the fund's boldest exposure.

Indonesian and Philippine shares currently trade at nearly 3.5 times and 3 times their book value - or companies' total value - indicating they are the most expensive in Asia. Shares in the rest of the region, excluding Japan, average 1.4 times.

The stock may be expensive, but Swan said earnings per Philippine share so far in 2014 have been similar to earnings over the past two-and-a-half years, whereas elsewhere in Asia ex-Japan earnings on average have been 25 percent lower.

Increased investment in the Philippines, resilient income growth and a current account surplus - indicating more money coming into the country than going out - suggests a chance of future earnings exceeding analyst estimates, Swan said.

In Indonesia, swift economic adjustment came as a surprise, Swan said. The current account deficit is narrowing, suggesting "we are getting through the worst of the adjustment process."

The deficit in the fourth quarter was about 2 percent of gross domestic product. That compared with a record 4.4 percent six months before, and was the narrowest since the second quarter of 2012.

BlackRock's ASEAN Leaders Fund returned 2.2 percent in the first two months of 2014, outperforming a 1.6 percent gain in its benchmark MSCI South East Asia index.

The fund returned 1.7 percent last year when its benchmark was down 4.5 percent and fund peers lost 5.3 percent, according to data compiled by global fund tracker Thomson Reuters Lipper.

Swan's top bets in the fund he co-manages include Singapore Telecommunications Ltd, Keppel Corporation Ltd and Malayan Banking Bhd.