'Expect some markets in ASEAN to see new highs'

'Expect some markets in ASEAN to see new highs'
PHOTO: 'Expect some markets in ASEAN to see new highs'

ASEAN markets have been among the top performers in the past two years, with Indonesia and the Philippines two of the standouts.

The Philippines was named one of the world's five hottest stock markets by business website CNNMoney in April and was upgraded to investment grade by international credit rating agency Standard & Poor's (S&P) and global rating agency Fitch Ratings.

This means that more foreign investors will be attracted to the country, since most foreign funds are only allowed to hold investment-grade assets rated by either S&P or Moody's Investors Service.

While the Filipino rally might encourage some to enter the market, Mr Alan Tan, senior ASEAN equities fund manager at Lion Global Investors, says that shares have already run up significantly.

"I'm underweight because the valuation is very high. On an average basis, this year the price-to-earnings (PE) ratio is 21 times, the highest in the region, excluding Japan," he says.

The PE ratio is a standard measure showing how the market values a particular share in relation to the firm's earnings.

A high average PE, as in the case of the Philippines bourse, indicates that investors see the shares as overpriced. It can also mean markets have high expectation of growth in the stock.

Mr Tan, 44, manages a number of funds, including the LionGlobal South East Asia Fund, the LionGlobal Singapore/Malaysia Fund and the LionGlobal Malaysia Fund.

Q: What is your style of fund management?

Mainly, we manage the funds on a benchmark basis, where we seek to outperform the benchmark at an acceptable level of risk, based on the clients' requirement.

This means stocks which we think have value that is not recognised by the market, such as stocks that are out of favour or that have a unique, non-consensus angle to it.

Q: What are some stocks you have spotted using that method that have done well?

We bought the stock of an auto manufacturer in Malaysia about two years ago. A segment was not doing well, the market did not like it and we thought it was mispriced.

As of now, the share price has almost doubled from almost two years ago.

If you follow the herd, you will not make that much out of it. You can play the momentum, but that can go up or down, so we try not to follow it.

Q: What are the reasons behind the country allocation of the LionGlobal South East Asia Fund, which invests primarily in quoted or listed securities in South-east Asia, particularly in places such as Indonesia, Malaysia and elsewhere in the region?

The divergence of performance between the countries is quite vast.

I'm overweight on Malaysia, underweight on the Philippines and neutral on Thailand, Indonesia and Singapore.

Most people are underweight on Malaysia because of previous election worry, and even the locals have cashed up.

I took this tactical view because in comparison with other ASEAN markets, Malaysia looks relatively cheaper.

In PE terms, markets like Thailand, Indonesia and the Philippines are trading way above their respective five-year average.

Only Singapore and Malaysia PEs, in comparison, look relatively in line with their five-year average.

Q: What is your take on the Philippines' high PE ratio?

The Philippines' earnings growth is not much higher than places like Indonesia and Thailand, but its PE ratio is much higher than theirs.

I think mainly it's because the market is illiquid. So any little money that goes in pushes valuation or prices up substantially. It looks expensive on a PE basis and historical basis.

Q: Do people really believe in the growth in the Philippines or is it more about the anticipation of growth? Is there too much hype?

On a macro basis and a company-specific basis, there is nothing specifically wrong about the Philippines.

It is growing very rapidly. It's just a matter of valuation - how much would you pay for good growth and good macroeconomics?

Q: What about Indonesia and Thailand?

These are bigger markets and more liquid so they don't go up too extensively. Thailand's trading volume is higher than Singapore's; it's more liquid than Singapore.

People buy into these countries also because they are more domestic-driven and do not depend on a strong Western economy, and are not driven by exports.

In the 2009 recessionary period, almost all the ASEAN countries recorded negative economic growth while only Indonesia generated positive growth because it is domestic-driven.

Q: What sectors are you bullish on?

My positions are mainly in domestic plays, companies which are leveraged to the domestic economy, and also companies exposed to the infrastructure sector, which is a beneficiary of domestic government spending.

There's a need to build up infrastructure across the region, excluding Singapore. Traffic is horrible in places like Jakarta, Kuala Lumpur or Bangkok so there's still a lack of infrastructure.

Domestic plays can also include consumer and retail stocks.

Q: Is Singapore still a good place to invest in?

Singapore has its own unique factors. The outperformers this year are mainly the yield stocks, as its dividend yield over the treasury rates spread is one of the highest in the region. Those that have done well are like SingTel or the Reits (real estate investment trusts).

Singapore has a unique niche, in terms of it being a centre for Reits and business trusts.

If you have a dividend-yielding fund or high income fund, the best place to look for these yield stocks is Singapore.

The other advantage is the Singapore dollar, which is perceived to be strong and appreciating.

If you are an income fund, a global income fund and emerging income fund, which are very popular these days, Singapore is the place to be.

Q: What is your outlook for ASEAN markets in the next six to 12 months?

They will continue to be strong. There may be periods of consolidation coming up but overall, I think it will continue to be a good year for all the ASEAN markets.

The earnings growth for ASEAN is around 7 per cent to 8 per cent for 2013, skewed a lot by Singapore, whose earnings are only growing 0.7 per cent. Indonesia and Thailand, on the other hand, are seeing mid-teens earnings growth this year.

By year-end, we expect some of these markets to see new highs again.


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