The region is also likely to receive an “underweight”, or at best, a “neutral” ranking from fund houses moving into 2016.
Aman Dhingra, executive director at Coutts, told Fund Selector Asia recently that high valuations and political uncertainty in markets such as Malaysia and Thailand makes ASEAN an unattractive region. He noted that the firm is broadly overweight only in Singapore.
OCBC’s wealth management group has meanwhile moved from being cautious to neutral for ASEAN. The lender noted that it is open to reviewing and adding on core strategies for this region.
In a disclosure this week, Nikko Asset Management revealed that it would maintain its underweight position for ASEAN markets. The firm noted that unstable political landscapes, deteriorating terms of trade and political inaction are among the key risks characterising ASEAN.
“We are seeing rising credit quality risks across a number of ASEAN countries and we do not believe this has been fully reflected in valuations. Indonesia’s recent efforts to support growth are encouraging but they stop short of more significant reforms, something we believe is difficult given the current political make-up,” the firm said.
"We are seeing rising credit quality risks across a number of ASEAN countries and we do not believe this has been fully reflected in valuations."
The slowdown in property and heavy industries in China has contributed to a sharp fall in global commodity prices. The countries in ASEAN being hit hardest have been the region’s two main commodity exporters, Indonesia and Malaysia.
BlackRock noted earlier this month that these two countries have the most exposure to further weakness in the commodity cycle and structural concerns have caused the firm to realign its holdings in the ASEAN region.
“One part of the region particularly sensitive to rates and further weakness in the commodity cycle is Southeast Asia where we see Malaysia and Indonesia as the most exposed to these headwinds,” Andrew Swan, BlackRock’s head of equities said.
Swan disclosed that BlackRock has tilted towards Thailand and decreased its exposure to Indonesia. The firm also noted that Singapore sensitivity to rate rises and its exposure to regional forces means that it is not a preferred play in the region.