Part I: INVESTING IN ASEAN – 2017 OUTLOOK

Opportunities in Asia

Part I: INVESTING IN ASEAN – 2017 OUTLOOK

In the first of a three-part series, RHB Asset Management’s chief investment officer sheds light on how ASEAN markets are faring

Published on 9 February 2017

As one of the fastest-growing regions in the world, South East Asia boasts a number of emerging markets that are attractive to investors – and despite the global economic slowdown last year, they continue to be attractive for trade and investments.

“The economic growth in ASEAN for 2016 was more than 4%, which is well above the global economic growth of 2%,” says Lee Kai Yang, Chief Investment Officer of RHB Asset Management Pte Ltd. “In fact, most countries in ASEAN have maintained their economic growth despite the global slowdown,” he adds.

Infographic, table chart, on economic growth in 2016 in ASEAN

The steady growth in ASEAN last year was driven by several key developments in the region. Indonesia – one of the biggest economies in ASEAN – for example, passed the tax amnesty law last year. “This is a milestone event and it signifies the intention of the Indonesian government to increase revenues and bring back capital into the country,” says Lee.

“For a long time, a lot of Indonesian money was kept in the banking system of Singapore,” he reveals. In addition, President Joko Widodo has appointed Sri Mulyani Indrawati – the highly regarded managing director of the World Bank – as Indonesia’s finance minister. This also boosts hopes for further reforms in the country.

Meanwhile in Thailand, the smooth royal succession following King Bhumibol Adulyadej’s passing last October has also helped allay investors’ concerns over political uncertainties in the country. “In the run-up to the King’s death, many who invested in Thailand were worried about the aftermath – but we have not seen any protests or riots in the country,” observes Lee. “The Thai stock market ended on a year-high in 2016 and the construction of new MRT lines are ahead of the original schedule,” he adds.

The ASEAN region also ended 2016 on a high note following the signing of a bilateral agreement for the high-speed rail linking Singapore and Kuala Lumpur on December 13. First mooted in 2013, the 350km high-speed rail line – which will shave travel time by land between Singapore and Kuala Lumpur to 90 minutes – is billed as a game changer for both countries. “This is a milestone event and will lead to investment opportunities in the years to come,” says Lee.

Key economic and investment drivers in ASEAN

For 2017 – a growing middle-income class, higher commodity prices and a strong connection to China’s growth engine are set to fuel economic growth and investment opportunities in South East Asia.

With a population of more than 500 million – and a large number of millennials – ASEAN is an opportunity for those who want to invest in the region. “China used to be a hub for manufacturing, but the wages there have increased substantially and many companies are thinking of relocating to countries such as Vietnam,” Lee reveals. “The young population in ASEAN will provide a ready pool of local workforce for these companies,” he observes.

“Moreover, countries like Vietnam are located in close proximity to China – so, this will facilitate the relocation process,” says Lee. “Hence, we expect to see higher foreign direct investments coming in to develop industrial parks and manufacturing hubs in ASEAN,” he adds. In addition, rising income and standards of living are set to spur rising consumer demands for a wide range of products and services in the region.

Lee Kai Yang from RHB wealth management

Lee Kai Yang – RHB Asset Management’s chief investment officer

Meanwhile, companies and investors who want to invest in ASEAN markets will continue to find opportunities in the infrastructure sector – given its current gaps. At present, governmental infrastructure spending has increased – particularly in Indonesia, Thailand, the Philippines and Singapore.

The One Belt, One Road (OBOR) initiative also facilitates Chinese investment into ASEAN and encourages the flow of people and goods between China and the region. The initiative is set to involve around 60 nations, including most ASEAN countries. The OBOR unlocks several projects that include the Jakarta-Bandung High-Speed Railway and Melaka Gateway Port.

As many Southeast Asian economies are highly reliant on commodities – the recovery in prices for crude oil, crude palm oil and coal oil will help to drive economic growth in countries such as Malaysia and Indonesia. “The recovery of these commodity prices will lead to higher rural income and this will translate into higher domestic consumption for these countries,” says Lee. He adds that continued recovery in commodity prices will also ease pressure on the banking sector – which is a key economic pillar for ASEAN countries: “Thus, banks in emerging ASEAN countries can expect to report better earnings.”

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