Impacted by Covid-19, almost all ASEAN countries, including Malaysia, recorded negative GDP growth in 2020, with the exception of Vietnam, which is projected to achieve positive growth of 2.8% thanks to strict pre-emptive measures taken at the start of the pandemic. Asia Asset Management (AAM) touched base with Dr. Tan Chong Koay of Pheim Asset Management, winner of the AAM 2021 Best of the Best award for Best Islamic Product to hear his thoughts.
Briefly, what are your thoughts on the macro situation in Malaysia and ASEAN?
We expect ASEAN economies to recover in 2021 following the coronavirus vaccine roll-out, which may hasten recovery in household and tourism spending as well as foreign direct investment.
A rise in the middle classes is also set to increase consumption, and the development of more sophisticated manufacturing capabilities will diversify exports and move ASEAN countries up the value chain, increasing exports value from the ASEAN region and improving the region’s economic value add, diversity and resilience.
What are the specific risks that you think investors should be concerned about this year?
Interest rates in most developed nations are already at around zero, hence negative interest rates are a key risk. The already high level of government debt-to-GDP globally means that there is limited room for further fiscal stimulus in the event of another recession.
Meanwhile, should the Covid-19 vaccines turn out to be successful and the economy heads into recovery, US-China trade tensions may return to the limelight. The Biden administration has so far not made any policy pronouncement on changes to tariff structures and is said to be only examining the Phase One trade deal. Investors should keep an eye on market valuations, as while ASEAN markets have substantially underperformed the US market, any major correction of the US market will be deeply felt across the region.
For the Malaysian market in particular, we see political uncertainty as the biggest risk post-pandemic. Prime Minister Muhyiddin has hinted at calling a general election once Malaysia has reached community immunity. The uncertainty of who will form the government and new government policies going forward may reduce foreign investors’ appetite for the local market.
How are you managing these risks on behalf of your clients?
We will continue to implement our ‘Never Fully Invest At All Times’ investment philosophy, which has proven effective over the years. Our focus will be on buying undervalued stocks with low gearing, rising profits and good management. We will also invest in sectors that are less exposed to the above-mentioned risks and avoid overvalued stocks.
Specific to Malaysia, where do you see the opportunities? Which sectors are likely to outperform and why?
After positive performances in 2020 we expect some sectors to correct and we will invest when share price see substantial corrections. A possible shift in the supply chain as a result of US-China trade relations could benefit selective sectors in Malaysia, for example furniture manufacturers. We will monitor closely the outcome of trade negotiations in order to take full advantage of further supply chain displacement to Malaysia. Looking ahead, we see opportunities in growing sectors including renewable energy, 5G, cyber-security, electric vehicles and batteries, as well as more cyclical sectors.
With an end in sight to managing the pandemic, where are the opportunities generally in the medium term?
By and large, ASEAN countries have demonstrated swift response to lessen the resultant economic impact from the pandemic. They have all taken comprehensive measures, including monetary policy easing, and hefty fiscal stimulus packages, targeting not only the hard-hit industries, but also healthcare sector and households. These packages totalled US$318.2 billion, equivalent to 10.1% of the 2019 regional GDP.
In my view, investing in markets like US and Europe would be quite challenging now, due to sky-high broad market valuations. Having said that, in the medium term, we are still seeing pockets of opportunities in Asia Pacific ex-Japan due to broad market valuations being not as high comparatively. Opportunities in ASEAN definitely exist – we just need to do our research to find these gems.