Articles

1 April 2012

Mr. Alan Tan, who heads the South East Asia Equity team at Lion Global Investors, shares his views on the outlook for the region’s equity sector this year.

Where do you think Southeast Asian equities are headed in 2012?

We expect the South East Asian (‘SE Asian’) market to head higher this year, although it is not likely to perform as well as the North Asian markets. Still, the rising middle class households, strong commodity prices and rising private consumption should see SE Asia enjoy economic growth in 2012.

We do not expect a sharp slowdown in the region as our base case does not include a global recession. On the whole, SE Asian markets are relatively more resilient than their neighbours as they are less leveraged to exports to developed economies (with the exception of Singapore) and have the fiscal strength to do pump priming. The experience in the 2008/2009 Global Financial Crisis has proven so.

SE Asian central banks have embarked on a series of rate cuts and monetary easing. What signals are they sending to investors?

The rate cuts implemented by the region’s central banks show firstly, the strength of the SE Asian countries’ foreign exchange reserves and balance sheet, and secondly, their intention to sustain domestic growth. It is also an indication that they do not view inflation as a concern anymore.

What are the implications of Indonesia’s sovereign debt rating shifting to investment grade by Moody’s amidst the European crisis? How can investors benefit from Indonesia’s rise?

The upgrade is good for Indonesia, as it puts the nation back on the radar screen of conservative fund managers whose mandate allows them to invest only in equities or bonds of countries that are rated investment grade.

In the immediate term, the yields on Indonesian sovereign rates have fallen as investors accumulate its sovereign bonds. The 10-year yields have fallen by more than 60ps from the announcement of the upgrade on 18 January 2012. We believe the upgrade by Moody’s will benefit Indonesia, as well as those invested in Indonesia) as the cost of funding will fall. At the same time, accessibility to funding will become easier as more investors can now invest in Indonesia.

For the moment, we do not expect sovereign upgrades for other countries in the region, for the immediate future.

Closer to home, what is the outlook for Singapore equities?

We are positive on Singapore equities for the year. Valuation is attractive, trading at one standard deviation below the historical average (1996 to Jan 2012) of 15.5 times. This scenario becomes even more compelling if you couple it with the fact the market was sold down aggressively last year as investors reduced risk, and as investors become more bullish as the global economy, especially the U.S., is showing some signs of stability.

Which sectors -- on the Singapore bourse and among Southeast Asian bourses -- are you most positive about?

For the Singapore market, we are positive on the offshore marine and the agriculture commodity sectors.

Among the SE Asian bourses, we think the Thai market looks interesting as it has the lowest valuation among the other SE Asian markets and the reconstruction spending, post the floods, will underpin economic growth this year.

Lastly, what are the key risks facing Southeast Asian equities in 2012?

The risks facing the region can be summarized as follows:

1. Inflation risk, e.g. from rising oil price or food prices.
2. Dis-orderly default in European countries.
3. The U.S. economy, which is just picking up now, slows down again.
4. China suffers an economic hard landing.

Important Information

Any opinions or views of third parties expressed in this material are of the third parties identified, and not those of OCBC Bank.

The information provided herein is intended for general circulation and/or discussion purposes only. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product.

In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.

OCBC Bank, its related companies, their respective directors and/or employees (collectively 'Related Persons') may have positions in, and may effect transactions in the products mentioned herein. OCBC Bank may have alliances with the product providers, for which OCBC Bank may receive a fee.

Product providers may also be Related Persons, who may be receiving fees from investors. OCBC Bank and the Related Persons may also perform or seek to perform broking and other financial services for the product providers.

No representation or warranty whatsoever (including without limitation any representation or warranty as to accuracy, usefulness, adequacy, timeliness or completeness) in respect of any information (including without limitation any statement, figures, opinion, view or estimate) provided herein is given by OCBC Bank and it should not be relied upon as such. OCBC Bank does not undertake an obligation to update the information or to correct any inaccuracy that may become apparent at a later time. All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein.

The information provided herein may contain projections or other forward looking statement regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially.

Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

The contents hereof are considered proprietary information and may not be reproduced or disseminated in whole or in part without OCBC Bank's written consent.