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Part III: Investing In ASEAN – 3 Sectors To Watch

Money / Opportunities in Asia

Part III: Investing In ASEAN – 3 Sectors To Watch

In the final of a three-part series, Chief Investment Officer Lee Kai Yang of RHB Asset Management zooms in on three investment-worthy sectors in the region

Written by WEALTH Team on 22 February 2017

Despite headwinds due to global macroeconomic events such as the fallout of Brexit and the new Trump administration in the United States, there is potential long-term fundamental growth in ASEAN.

“These events entail risks but also create opportunities for investors, especially those with longer-term horizon who can ride out short-term volatility,” says Chief Investment Officer Lee Kai Yang of RHB Asset Management.

Lee points out that ASEAN is a region of different markets, varying economic developments and diverse political landscape. “In RHB Asset Management, we understand ASEAN and find three sectors particularly interesting today – finance, infrastructure and consumer,” he reveals.

Finance

As non-performing loans in countries such as Indonesia and Thailand have endured the worst of times, Lee believes the banking sector of emerging ASEAN markets can be attractive to investors. “In addition – as central banks in the region are expected to impose fewer interest rate cuts, the net interest margin for banks is expected to improve – which bodes well for the financial sector,” he says.

Infrastructure

As the rate of urbanisation in the ASEAN region is less than 50%, Lee says a majority of its population still lives in rural areas or makeshift housing. Pointing out that the need for basic housing is still underserved in countries such as Indonesia, he adds: “As their incomes increase, the demand for basic housing needs will increase.”

screen-shot-2017-02-21-at-4-22-55-pmLee reveals that government spending will also fuel infrastructure development in ASEAN countries as they upgrade airports and construct new MRT lines. “So, investors can look at investment opportunities in building contractors and companies that supply building materials as they will benefit from higher infrastructure development in the region,” he suggests.

In addition, Lee believes the industrial property market in emerging ASEAN markets will benefit from more foreign direct investment as potential investors look into the development of industrial parks and factories.

Consumer

Rising income and standards of living are set to spur rising consumer demand for a wide range of products and services, according to Lee: “Investors can consider traditional investment opportunities in supermarkets, convenience stores, department stores or food and beverage companies.”

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

“Uncertainties due to risk-off events will often result in periods of asset reallocation,” Lee points out, as global investors shift their investments from emerging markets (EMs) to developed markets. “As the ASEAN region falls under EMs – with the exception of Singapore – we will see risk aversion in its equity market during such times,” he anticipates.

screen-shot-2017-02-21-at-4-19-23-pm“It’s not just the equity market,” Lee cautions, as the region’s currencies may also be affected. “However, currency will only be a major issue if a country has twin deficits and insufficient reserves,” he explains.

“Some EM currencies – such as the Malaysian ringgit – have actually weakened quite substantially against the US dollar,” Lee points out. But he thinks the overall growth story in Malaysia is still quite strong, bolstered by the increase in crude palm oil prices and a possible upcoming election in the near term.

CIO Perspective

As Lee highlights the risks, he believes the upside of investing selectively in ASEAN equities potentially outweigh fixed-income investments because of rising interest rates.

Headquartered in ASEAN, RHB Asset Management (RHBAM) has the regional experience and expertise since its establishment in 1988. Lee joined RHBAM in 2014 and is now the CIO for Singapore and Hong Kong. He has over 16 years of industry experience and – prior to RHBAM – was Assistant Director with Baring Asset Management for seven years, managing various Asian mandates focusing on ASEAN equities.

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