Investment guru sees interest from China and Japan in SEA, including M'sia

TOKYO - South-East Asia (SEA) will benefit from growing investor interest from China and Japan in the manufacturing and consumer-related sectors, in line with the improved outlook on emerging markets after a weak 2013.

Templeton Emerging Markets Group executive chairman Mark Mobius said SEA markets, which should be looked at as a unit rather than as individual markets, have become investment targets for China and Japan in seeking growth opportunities.

"We're very excited about SEA now. These markets are benefiting from China as an important import and export partner, while the Japanese government has expanded its money supply more rapidly, whereby I believe some of this money will find its way into SEA."

Mobius said at the Franklin Templeton Investments Asia Investor Forum 2014 that Japan would be a big competitor to China.

Among the sectors Chinese investors are looking at are manufacturing, given the rising cost of production there, as well as consumer-driven businesses.

"The Japanese are looking at manufacturing to sell to the local market and retailing, in which they are quite big throughout Asia, and in particular, Malaysia," he said in an interview.

As spending power in SEA grew, Mobius said, consumer-related businesses would be increasingly attractive to foreign investors.

"They would first set up a distribution network in SEA for their products before eventually setting up the manufacturing facilities in the region."

Within SEA, Mobius is positive on Thailand, Indonesia, Malaysia, Vietnam and Singapore, while he thinks liquidity in the Philippines is not good, but improving.

While SEA economies are generally strong, with low government debt, he cautioned that there could be consumer debt problems in some countries, including Malaysia.

"Consumers are getting over-leveraged. I don't see a financial crisis happening, but SEA has that risk because a lot of people here are new to the easy financing facilities like credit cards and loans."

Mobius is bullish on the banking sector in SEA and other emerging markets, given the rise of consumerism in this region.

"As per capita income increases, the emerging-market consumer has more access to borrowing facilities and money to buy things. We are looking at a new era of consumer banking in these markets," he said.

Mobius noted that with trade agreements in place, the region will become more attractive, as investors can tap into a large population base.

Last year, emerging markets generally softened compared with their developed peers as foreign funds flowed back into the developed markets like the United States.

Mobius believes that the reverse will happen this year as emerging markets have already outperformed developed markets like the United States, in particular, in the first quarter of 2014. "It is a sign that money is flowing back into emerging markets."

Although diversification remained a key practice in investing, Mobius said, at least 35 per cent of a portfolio should be in the emerging markets. However, he said it was not fair to look at emerging markets as a whole because of the variables in each market.

"When one invests in the emerging market, one needs to be specific. Some are good, while some are not performing. You have to look at the tax system, profitability, strength of the balance sheet and return on capital or equity," he said, emphasising a bottom-up strategy when looking at specific companies before looking at the market or the sector.