No need to fear Asean correction, says Invesco

A recent correction in a number of Asean stock markets should not worry investors, according to US fund house Invesco.

With some emerging-market investors viewing the Bric markets as overbought, there has been a surge of interest in Asean markets, in particular Indonesia, the Philippines and Thailand.

Each of these countries’ stock markets have experienced impressive rallies this year. After being upgraded to investment grade by Fitch in March, the Philippine Stock Exchange index soon hit at record of 7,262.38 on May 10. Similarly, Indonesia’s index rose to over 5,200 in May, while the Stock Exchange of Thailand hit a 19-year high on May 21 at 1,643.

Since May, however, there has been a significant pullback. On June 14 the PSEi closed at 6,242.26, the JCI at 4,760.75 and the SET at 1,464.22, although all three are up year-to-date – the PSE up 6%, Indonesia up 7% and Thailand up 2%. However, depending on what happens with China or other neighbouring countries, these stock markets could drop further, says Abdul Jalil Rasheed, newly hired investment director in Invesco’s Singapore office.

“[Corrections are] happening right now,” he tells AsianInvestor, having joined Invesco in April from Aberdeen Asset Management in Kuala Lumpur. “And do I think there’s more room to go? Yes. Particularly if China recovers, there may be a situation where more money flows out of Asean markets which will bring the stock market down further.”

This should not concern investors in the region, however. If anything, they should see it as an excellent opportunity to swoop in and buy cheap company stocks, argues Jalil. He is the first investment executive to be based in Singapore for Invesco, and sources say more additions to the team are planned.

“[Corrections] give long-term investors the ability to pick up good-quality stocks at prices that make a lot of sense. I do like market corrections. They’re good,” he says. “Don’t be fearful of falls.”

The fundamentals of these countries has not changed, adds Jalil, noting that the Philippines in particular is the new “darling of the investment community”, as the local business community is confident about the country’s future under President Benigno Aquino.

Under Aquino, there has been a real “crackdown on corruption”, and while the country still has its problems – Jalil cites the 12 families that control 85% of the wealth – the Philippines is a maturing democracy with young demographics.

Indonesia’s population is also worth watching, as those eligible to vote in the next 10 years “have very different concerns” than the older generations, such as human rights issues, freedom of speech, cost of living and governance.

Perhaps most notable across the two markets is the significant use of social media by young Filipinos and Indonesians. “Everyone in the Philippines is on Facebook and Twitter, and Indonesia is the largest consumer of BlackBerry [products] in the world,” Jalil says, noting how the influence of social media cannot be understated.

And while Indonesia's government provides heavy subsidies in several sectors, most notably for fuel – something that takes a major toll on state finances – there is still an untold amount of opportunities for long-term investors.

(Jalil argues that the money poured into subsidies could be put to much better use by improving infrastructure, given that it is common to see a “lot of half completed roads and tunnels” in Indonesia.)

Indonesia and the Philippines have outperformed broader Asia ex-Japan markets over the past quarter, he adds.

He declined to discuss specific companies the fund is invested in, or offer fundraising targets for the $269 million Asean fund, which is up 9.62% year-to-date.