Thailand, Indonesia and the Philippines – otherwise known as TIPs - are poised to grow faster than their export dependent peers, said Camille Vergara of GAM.
‘Superior GDP growth for the next 5 years will come from TIPs because these economies are driven by domestic demand, compared with Singapore and Malaysia, where the export-to-GDP ratio is much higher,’ says the ASEAN veteran.
This growth will be underpinned by consumption and infrastructure spending, added Vergara, who noted investment into infrastructure and production facilities has lagged since the 1997 Asian Financial Crisis and now needs greater investment to meet the demands of a growing middle class.
‘Broadly, we favour consumption spending and infrastructure building, but other sectors will benefit from these themes, including banks where the credit-to-GDP ratio is still low with a lot of room for growth while loan-to-deposit ratios remain healthy.'
'Property is another sector we like because this is part of consumption spending/investment.'
Vergara employs a combination of top-down and bottom-up investing, looking at macro factors globally and identifying themes that she believes will offer better growth. This is coupled with identifying companies that are best able to benefit from these themes.
However, investing in ASEAN equities is subject to risks, two of which Vergara highlights as very relevant to ASEAN.
‘As we’ve seen in the past three years, fund flows and currency volatility are two big risks. EM ETFs especially, contribute to the volatility in fund flows. But this is offset by the superior growth that we feel is structural and compelling.’
Supported by strong GDP growth, she expects earnings growth in the region of 15%, although this varies across companies and sectors.
One risk that she feels has been overblown is that China’s slowing GDP, which in the long-term is actually positive for Asia and the world.
‘People are worried about Chinese economic growth which is slower than expected, but we feel quality growth is better than quantity of growth. Quality growth is sustainable and less volatile and steady growth in the world’s second-largest economy will be good for neighbours like ASEAN, and indeed, the whole world.’
Year-to-date as at end-June, GAM Star Emerging Asia USD Acc has returned 3.60% against the technical indicator MSCI South East Asia TR USD return of 1.78%.