The company remains cautious on ASEAN, citing challenging macro-economic conditions, but it has a preference for Singapore companies compared to those in Indonesia and Thailand, said managing director Hozefa Topiwalla.
He believes Indonesian companies’ net profit margin (NPM) has peaked after so many years of strong growth, while the NPM of Singaporean companies has troughed after seven years of a global growth slowdown.
“Singapore is the only market seeing upside in earnings revision,” he said, adding that valuations in Singapore are also more attractive than in Indonesia and Thailand.
ASEAN as a whole, he forecasted, will have sluggish revenue growth. Net profit margin will become the most important criteria for investment decisions, which in turn will drive the sub-region’s markets.
Citing the research house’s recent report, he listed ASEAN’s five most productive companies as: Indonesia’s Matahari Department Store and Surya Citra Media, Thailand’s CP All, and Singapore’s Thai Beverage and Singapore Exchange.
However, Topiwalla said investors in ASEAN should now focus squarely on productive companies that are improving profitability and have operations that will benefit from global growth.
“The domestic consumption story in ASEAN is coming to an end.
“If global growth remains choppy but recovery is real and certain, then pockets of global cyclical stocks will do well.”
His assessment of ASEAN in the next five years was tempered by concerns. “In the last ten years, a rising tide lifted all boats. The tide was driven by free availability of capital, free labour and China and the US economies doing well.
“This lifted all emerging markets including ASEAN countries. However, in next five years these tailwinds are likely to turn into headwinds. Capital is going to be more expensive, labour will be scarcer, and China and the US are not going to be as supportive for global growth as they were in last ten years.”
Tough macros
Deyi Tan, executive director, highlighted a few of the challenging macro conditions in the ASEAN region.
Growth for the next few years will be lower, he said. “We have come to a point whereby the urgency for policy makers to step out in terms of policy, such as interest rate hikes and currency depreciation, and structural reforms, such as macro re-balancing to improve competitiveness in a non-commodity cycle, is placed one notch higher.”
