Barings optimistic after Philippine election

Added 17th May 2016

Policy priorities imply mid-long term equity market benefits, particularly in the consumer consumption sector, according to Soohai Lim, investment manager of Baring ASEAN Frontiers fund.

Barings optimistic after Philippine election

“While it is early days for investors to vote on the implications of [president-elect Rodrigo] Duterte's win for the economy and market, there are reasons to be optimistic, notwithstanding his controversial methods and campaign rhetoric,” Lim wrote in a research note.

For example, continuing the infrastructure focus and attracting investment appear to be some of Duterte’s policy priorities, which are important to sustain the medium-term growth potential of the country, according to Lim.

“His track record as mayor of Davao City has been impressive for delivering better than national income growth. Should he assemble a credible economic team, we are hopeful that implementation would be more effective under his administration. All this should ultimately mean that the growth in the Philippines will continue, leading to higher incomes and benefiting our middle class consumption stocks."

The Philippines is one of the most promising countries within the ASEAN market due to its sizeable and extremely youthful population, he said, adding that the Philippines accounts for 11% of the Baring ASEAN Frontiers fund as of March 31.

Geographic allocation

Country 
Indonesia  29.6 
Thailand 23.7
Singapore  19.8
Malaysia 11.1
Philippines  11.0
Vietnam 2.6
India 0.7
Cash 1.5

 

Source: Firm's factsheet 

 

ASEAN market  impact 

In terms of the wider ASEAN market, strong GDP growth and rising per capita wealth across the ten countries in the ASEAN bloc are resulting in excellent, long-term investment opportunities in companies, particularly ones focused on the regional consumption story, Lim believes.

ASEAN GDP nearly doubled between 2007 and 2014, while GDP per capita increased by 76% in the same period, and these dynamics are reshaping the regional investment landscape, despite the fall in economic momentum in China, he  added.

The rise in GDP benefitted the sub-region's equity markets. According to data from FE, the FTSE Asean Index was up 109% in US dollar terms from January 2007 to December 2014.

“Some investors appear to be overly pessimistic with regard to Asian emerging and frontier markets. As bottom-up investors, we do not let short-term macroeconomic factors, such as China’s economic slowdown, or a fall in commodity prices, sway our investment decisions.

“Instead, we believe these macro trends are secondary, and that ASEAN companies can offer valuable long-term opportunities for investors."

Analysts are mixed on the outlook of the ASEAN markets. Conning Asia Pacific believes that a high level of household debt in places such as Southeast Asia could be a risk for investment, while Falcon Private Bank sees easing currency risks to support Asian equities.

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The Baring ASEAN Frontiers fund has been mostly underperforming its benchmark MSCI South East Asia index for the past three years, according to FE Analytics.

 

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