Shaky political climate in ASEAN poses risk

Added 3rd September 2015

ASEAN’s slowing growth and volatile political climate is worrying and presents risk, Elizabeth Soon, portfolio manager of PineBridge Investments said in an interview with Fund Selector Asia.

Shaky political climate in ASEAN poses risk

She noted that while ASEAN equity valuations are higher as compared to other Asian regions, the area’s unstable political climate presents problems. Her main concerns center on the election process in Thailand and Malaysian Prime Minister Najib Razak’s ongoing battle against allegations of corruption in the wake of the 1Malaysia Development Berhad (1MDB) controversy.

The Thai military junta dissolved the country’s previous constitution when it seized power from the elected government in May last year. It appointed a body to draft a new one, with a referendum for the new charter set for January 2016. This process is however complicated with an emergence of a group of people who want the current government, led by Prime Minister General Prayut Chan-o-cha, to stay on in power.

In Malaysia, Najib is battling mounting pressure from the public to step down. Earlier in mid-August, an opposition party filed suit against Najib and the indebted state fund 1MDB, saying they had violated electorate rules. 1MDB, whose advisory board is led by Najib, is under probe for graft and financial mismanagement. Najib is also being pressured to explain a $700 million payment or donation that ended up in his personal accounts.

Soon said that, on a relative basis, China is politically less problematic despite its slowing economy.

Yet amidst the political chaos in ASEAN, Soon’s view is that stocks in the region are close to accumulating levels – albeit exercising caution and being very stock selective.

“On the markets level, a lot of stocks are close to 2011 [valuations]. We are looking at disaster-trigger levels, but the health of economies is still fine,” Soon noted. Stock markets fell sharply in mid-2011 due to fears of contagion of the European sovereign debt crisis to Spain and Italy, as well as concerns over the downgrade of France’s then-AAA rating.

PineBridge announced this week that it has added the PineBridge Asia ex-Japan Small Cap Equity Fund under the Central Provident Fund Investment Scheme in Singapore. The PineBridge India Equity Fund, PineBridge Singapore Bond Fund and PineBridge US Large Cap Research Enhanced Fund are also included under CPFIS.

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