ASIA - The variety of economies at different stages of development in the ASEAN bloc offers a compelling opportunity for institutional investors, Baring Asset Management believes.
Barings said South East Asia, known as the Association of South East Asian Nations (ASEAN) region, is increasingly benefitting from the rise of China and India, with trade between ASEAN and China now as large as that between US and Europe.
SooHai Lim, manager of the Baring ASEAN Frontiers Fund, also believes the region's demographic profile means it a remains a compelling prospect despite strong returns over the last two years. Since launching in 2008, the fund has returned 34.9% over one year compared with the MSCI South East Asia Index's 30.2%.
"We expect the region to deliver good earnings growth this year and do not believe current valuations are demanding," Lim said. "In addition, the region includes frontier economies and markets like Vietnam and Laos, which are in the early stages of economic development, with low correlation to the global economic cycle, thereby providing good risk diversification for investors."
"While China remains a competitor for foreign direct investment, the Asian giant is now looking at investing in high speed rail projects linking southern China to Laos and Thailand, potentially extending the network all the way down to Singapore. India too with its hungry demand for thermal coal to fuel its power plants build-out, has also started investing in resource rich Indonesia."
At a country level, Barings sees good value in Thailand, Indonesia and the Philippines. Thematically, Barings also expects continued investment into infrastructure projects across the region and favours those companies that are set to benefit from this, typically in the industrial and materials sectors.
A number of related industries will likely benefit from this trend and there is potential for a strong long term growth story in low cost air carriers and integrated resorts operators. Both soft and hard commodities are a theme within the fund as countries such as Indonesia, Malaysia and Thailand are amongst the leading exporters of foodstuffs such as palm oil and rice.
Rising food prices are expected to lead to higher farm incomes, further benefiting domestic consumption. Given rising real incomes and a burgeoning middle class, Barings anticipate a marked increase in domestic consumption across a number of regional economies.
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