Regional News
If only it were all about a combination of healthy economic and strong leadership the countries that form the heart of the Association of South East Asian Nations would have been rewarding investors handsomely.
In fact, investors in funds with broad exposure to equity markets in Asean nations have been treated to just the reverse. Asean countries were perceived to be particularly exposed to the European sovereign debt crisis because Europe is such a significant market for the goods they export.
The worsening situation in Europe sparked a rout in Asia’s stock markets in August that generated significant redemptions across the board in equity funds invested in the region, according to data from EPFR, the funds data provider. But Asean fund managers think it would be wrong to pull out now and claim some of the bad press has even presented a buying opportunity.
“It’s all about stock picking,” says Mark Monson, senior fund manager specialising in Asian emerging markets for Raiffeisen Capital Management, who sees particular opportunities in the Philippines at the moment.
He co-manages two funds with significant equities investments in Asean countries – the Raiffeisen Emerging Markets Equities fund and the Raiffeisen Eurasia Equities fund – but admits they have not been rewarding investors of late. The Eurasia fund was down 18.86 per cent in the year to September 30 and the Emerging Markets fund has also been hammered, losing 14.47 per cent in the same 12 month period. Both funds have significant exposure to Asean equities.
Despite the poor performance, Mr Monson insists good returns remain available for investors prepared to do their homework. He cites gems such the Indonesian conglomerate, Astra International, which he says “has given us close to 200 per cent returns in the past two to two and a half years”.
Chris Wong, senior investment manager at Aberdeen Asset Management Asia, is also a fan of Astra International. He says it offers exposure not only to the rise of Indonesia’s middle class domestic consumer, through avenues such as its Toyota franchise for Indonesia, but also to the commodities sector through the businesses it owns in the mining sector.
Mr Wong says Aberdeen’s biggest exposures in its Asian and emerging markets funds are to Astra and Astra’s parent, Jardine Strategic, as well as Unilever Indonesia, which also offers exposure to Indonesia’s domestic consumers through its acquisition of many local brands.
“Indonesia seems to be the darling of the investment world,” Mr Wong says, adding that its appeal is underlined by fundamentals such as its huge population of 350m, which dwarfs the 25m of neighbouring Malaysia or Thailand’s 70m.
Anthony Chan, senior vice-president and economist on AllianceBernstein’s fixed income team in Asia, says the Asean region’s recent relatively poor performance compared with its bright outlook is not only due to the perception that it is exposed to a slowdown in Europe, but also that its fortunes are tied in with China’s and there are fears of a Chinese hard landing.
Nonetheless, for investors hoping to escape bad news in developed markets, Mr Chan recommends taking a longer term view. He says the process of decoupling has already started, although it may not be visible on a day-to-day basis. “But over a longer period of time, say two or three years, Asia will decouple.” In the meantime, if there is a sell-off on Wall Street investors should not be surprised if markets fall in Asia the next morning, says Mr Chan.
Aside from the long-term benefits of investing in Asian equities, he expects the returns for fixed income investors to be as attractive and recommends holding a firm currency in most Asian countries. “Inflation in most countries seems to be topping out,” he says,
Mr Chan says the outlook for Asia over the next few years is good. “Asia is already ahead of the tightening curve,” he says, explaining that as growth slows down and inflation peaks, Asia will have a lot of room to manoeuvre in terms of fiscal policy.
There are a few caveats, even among these fund managers whose livelihoods depend on a positive story for Asian investors.
For example, governance issues remain a big issue across the region, according to Mr Wong, who says different countries have different track records. “It’s probably who you invest in and not what you invest in that’s important,” he says.
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By: Emma Boyde
Source: Financial Times, Nov. 6, 2011
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