Barings’ Asian equities manager, Soo-Hai Lim, has said he is cautious about topping up exposure to Singapore and Malaysia over fears about the countries’ economic growth prospects.
Mr Lim has had a large underweight position in both nations in his $592.4m (£364.9m) Asean Frontiers fund, which targets countries in the Association of Southeast Asian Nations (Asean) group.
Singapore makes up 29.4 per cent of the portfolio, compared with 33.7 per cent in the benchmark MSCI South East Asia index, while the manager has 19.3 per cent in Malaysia against the index’s 26.5 per cent.
In July, data showed the Singaporean economy had contracted on a quarterly basis for the first time in two years, while Malaysia is going through a process of budget-deficit reduction and may miss its 2014 target.
“Singapore and Malaysia are more developed than the rest of the Asean countries,” he said.
“This makes them more expensive and in the long term they don’t have as good [economic] growth potential. In terms of size, Malaysia is much smaller than the countries we favour, such as Indonesia, so it is less likely to expand rapidly.”
Mr Lim said he can still find selective opportunities in Malaysia, though, but ones which don’t necessarily rely on the domestic economy. Tune Insurance, an online travel insurance provider based in the country, is one of the latest additions to his portfolio.
In general, however, he finds more interesting growth companies in Indonesia and the Philippines.
Mr Lim holds a 3 per cent overweight in Indonesia and is confident that 2015 will be a strong year for the country as the macroeconomic environment has improved.
Investors had been wary of the turbulent country as they awaited the results of the presidential elections in July. However, with Joko Widodo elected and an expectation that interest rates will rise next year, Mr Lim said there was a strong outlook for the country.
Elsewhere, he has mixed feelings on Thailand, which makes up 15.1 per cent of his portfolio, in line with the benchmark.
“Thailand has a higher risk than the rest of the countries in the region as there remains a lot of political uncertainty around the constitution,” he said.
In July, Thailand adopted an interim constitution ahead of the October 2015 elections. This constitution preserves the military-led government.
Mr Lim is slightly fearful of what the new election might bring, but is confident that for the next 12 months the country remains a favourable investment opportunity.
One of the latest additions to his portfolio was Bangkok Dusit Medical, Thailand’s largest private hospital operator.
Healthcare, education and lifestyle are his sectors of choice because he thinks these are Asean consumers’ priorities as they become more middle class.
The fund has outperformed the MSCI South East Asia index benchmark so far this year, returning 15.3 per cent compared with 13.4 per cent. Since inception, it has returned 9.4 per cent, outperforming the benchmark’s return of 8.8 per cent, the group said.
Overall, Mr Lim thinks the region is in a “cyclical recovery” after two turbulent years.
“I would not describe these countries as extremely cheap, but they have achieved growth levels so far this year. I think they can maintain these levels and some could even accelerate,” he said.
However, he notes that the Asean countries still face headwinds.
“If the US raises rates higher than expected, then there will be more volatility. Even more of a concern is if China’s growth slows down dramatically,” he added.
