Vietnam to lead Asean recovery says Barings Asset Management

31st March 2014

Vietnam should help drive a recovery in the ASEAN sector, Barings Asset Management says. The firm says Vietnam is likely to enjoy another year of robust performance in 2014 with a stable economy, a positive trade balance and exports that grew by an impressive 15.4% in 2013 – the strongest growth in Asia.

Barings says that multinationals have continued to invest in Vietnam, with foreign direct investment into the country estimated at US$10 billion per annum over the past five years.  Samsung’s second plant in Vietnam, for instance, will be its largest globally and account for half its smartphone capacity when ready in 2015.

SooHai Lim, Investment Manager of the Baring ASEAN Frontiers Fund, says: “In terms of the ASEAN market, we find more interesting ideas at this point in Vietnam.  It is a market we like this year, and one of our biggest overweight holdings versus the benchmark. The Government is tackling bad debt in the system, and markets are very attractive in terms of prices.  Since the start of this year, Vietnamese corporates have also gained from corporate tax cuts from 25% to 22% – which are due to be cut further to 20% in 2016 – giving a significant lift to profit growth.

“Barings believes that the resurgence in Vietnam will help drive a wider recovery in the ASEAN region.  While markets in Indonesia, Thailand and the Philippines declined in the second half of last year, in 2014 so far, markets have recovered.  While one cannot rule out the possibility of further volatility, the stage is set for a better second half to the year as cyclical and political headwinds abate.”

The firm also thinks that the second half of this year could be particularly rewarding for investors in Indonesia. It notes that  Jakarta Governor Joko Widodo is his party’s nominee for the July Presidential election and this could be good news for investors given his successful track record of reform.

Lim adds: “The weakness for Indonesia is the current account deficit, which reached 4.4% in the second quarter of last year.  After some initial policy missteps, the Government and Central Bank raised fuel prices and interest rates and allowed the currency to depreciate sharply in order to reduce imports and slow growth to address the current account deficit – the Central Bank raised interest rates by 175bps and let its currency depreciate strongly by almost 20% last year.  As a result, we are starting to see improvements, particularly on the trade front.

“For an emerging economy like Indonesia, investors should be comfortable if the deficit remains at around 2.5% of GDP. In fact, if you look at the trade numbers for the fourth quarter, the current account deficit actually came in below 2%.”

“The ASEAN region has historically lagged the likes of China and India in infrastructure investment, but Barings is encouraged that regional governments are tackling bottlenecks as they recognise that investment in infrastructure assets is a requisite to supporting economic and population growth.”

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