ASEAN rebalances after finding the lows

Added 2nd September 2015

Amid weak growth and currency instability, ASEAN’s potential still remains strong with the region set for a likely recovery by the end of 2015, according to Baring Asset Management.

ASEAN rebalances after finding the lows

Slumping growth in Southeast Asia has led to wariness in the markets, which only accelerated when the Malaysian ringgit fell to an all-time low against the Singapore dollar in mid-August. Lower oil prices have also dealt a blow to Southeast Asia’s energy firms, especially those in Malaysia and Indonesia that rely on oil exports.

Yet amid the marked slowdown of Southeast Asian economies and wildly fluctuating energy prices, Baring Asset Management continues to see the region as a good long-term bet for investors. 

“ASEAN is relatively unloved at the moment due to a host of factors such as concerns over the strength of the US dollar, preference for North Asia and weak domestic earnings,” Soo Hai Lim, investment manager of Baring ASEAN Frontiers Fund said. “However, we believe things should start looking up in the second half of 2015,” he added.

He noted that while ASEAN currencies were worst-hit against the US dollar due to concerns over a potential US central bank rate hike, weak currencies are no longer an issue for ASEAN. Most ASEAN countries, such as Thailand and Singapore, are net oil importers. Lower oil prices mean a likely improvement in trade and current account balances for these countries, which translates into greater flexibility in monetary policies.

Lim is optimistic about Indonesia, Thailand and Vietnam.

He pointed out that Indonesia’s stock market has underperformed due to a sharper than expected economic slowdown – caused partly by inexperience and an overly ambitious agenda by the new Joko Widodo administration.

“Earnings have suffered serious downgrades and stocks have been de-rated, resulting in stock market valuations hitting a five-year low in Indonesia. With foreign investors turning into net sellers over the last 12 months, the market is no longer as crowded as it had been in the past,” Lim said.

He remains confident that apart from a bottoming-out of earnings downgrades in the coming months, sentiment could also turn around with a new cabinet line-up in Indonesia.

Lim noted that while economic conditions are tepid in Thailand, the country’s implementation of infrastructure projects worth some two trillion baht (US$28 billion) should put economic recovery on a firmer footing.

Lim is especially upbeat about Vietnam. The country reported GDP growth of 6.3% in the second quarter in line with strong performance from the real estate, manufacturing and mining sectors. In addition, the Vietnamese government has also announced that foreign investors will now be allowed to increase their voting shares in listed companies from 45% to 100%.

“This is not only good news for foreign investors, but more importantly, signals the government’s commitment to support its domestic stock market,” Lim said. 

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