ASEAN: An emerging gem
UOB Asset Management (UOBAM) is proud to have won seven prestigious awards in Asia Asset Management’s Best of the Best Awards 2023, namely Best Asset Management House in Asia (20 Years), Best Digital Wealth Management (Asia and Thailand), Best ESG Manager (Brunei and Thailand), Best Application of ESG (ASEAN) and Best Sukuk Manager (Brunei).
Over its 37 year history, UOBAM has built a deeply-embedded presence in the Asian financial industry. Sharing his insights on the financial industry post-Covid UOBAM’s CEO Thio Boon Kiat said that on the face of it, the financial industry is back to normal with few changes. But he suggests that a closer look reveals there is “no going back” on several key developments.
ASEAN’s stability and self-sufficiency have come to the fore, making it an attractive investment destination.
Thio attests that foreign investors have a lot of confidence in the region, with foreign direct investments or FDIs having returned to pre-pandemic levels. With 60% of its population now under 35, ASEAN’s resilience, he says “is a testament to its attractive demographics, including a large, young, and educated workforce and a large pool of middle-class, e-savvy, and ESG-conscious consumers.” This makes ASEAN an ideal location for high-tech manufacturing investments, such as semiconductors, electronics, pharmaceuticals, and electronic vehicles or EVs. In addition, a manufacturing supply chain that is increasingly intra-ASEAN, further demonstrates the region’s strength.
Partners, not competitors
Asked whether he sees China as a threat to ASEAN, he attests that they share a mutually beneficial relationship, and that rather than being competitors, they are more co-dependent, with both being major trading partners and benefactors of foreign corporates’ China+1 strategy. He highlights that UOBAM believes in the long-term and concurrent investment potential of both regions, with innovation-focused Chinese companies able to offload traditional manufacturing to ASEAN, and China itself being a large investor in ASEAN via its belt-and-road policies.
Among ex-Singapore ASEAN economies, Thio identifies Indonesia, Thailand, and Malaysia as having compelling megatrends in its favour. With the fourth largest population in the world, Indonesia’s vast population and “bonus demography” will see productive population double the non-productive population by 2030. In addition, the government’s introduction of the Omnibus Law in an effort to regulate the financial sector, looks set to help drive job creation and public sector growth. He also cites its rich resources, with the country having the largest nickel and third largest cobalt reserves in the world.
Thailand, meanwhile, Thio explains, is focused on developing its healthcare and EV sectors, ranking fourth in the world for global medical tourism spending, backed by policy support for medical hub manufacturing, including pharma and medical devices. It is also fast becoming the “Detroit of SE Asia” with the growth of manufacturing plants for Japanese and EV carmakers.
Malaysia too is experiencing growth in tech-related manufacturing, becoming one of the primary benefactors of the supply chain shift towards ASEAN with more than 50% of ASEAN’s listed hi-tech manufacturing companies now located in the country. It is also a large recipient of FDIs for electrical and electronics, oil and gas and outsourcing activities.
Indeed, Thio believes the potential for ASEAN markets in the coming years appears promising, given that the region is under-represented in global portfolios. Currently, the region’s Equity Market Cap/GDP ratio stands at a mere 0.6x, significantly lower than developed markets (1.3-1.5x) and EM Asia (0.8-0.9x). However, ASEAN's GDP is projected to double to $8 trillion by 2030, elevating it to the position of the world’s fourth-largest economy. “There is potential for the region’s capital markets to triple by the end of the decade,” he says.
The burgeoning number of unicorn listings in the area, with a record-breaking 19 in 2021, further underscores the strong growth trajectory of ASEAN markets.
Investment strategy
Describing UOBAM’s investment strategy in relation to ASEAN markets Thio reflects on the region’s diverse macro-economic and political cycles. Recognising that global bottom-up research is often limited to larger stocks and may overlook non-disclosed information such as ESG credentials, UOBAM is leveraging its on-the-ground teams in Singapore, Malaysia, Indonesia, Thailand, Vietnam, Brunei, Taiwan and Japan, as well as China, through their joint-venture partner, Ping An Fund Management Company, to exploit existing market inefficiencies.
The firm’s ability to identify under-the-radar opportunities with growth potential in fast-expanding economies is especially potent when its research diverges from prevailing market views.
UOBAM is also committed to applying its ESG framework, and to enhancing its effectiveness through the implementation of investment technology, and by adding Artificial Intelligence and Machine Learning (AI/ML) to its investment capabilities. Direct company engagements and the application of AI-based model portfolios are designed to support and enhance all bottom-up research. It’s a strategy that has contributed to the success of the firm's ASEAN equity fund, which has delivered excess returns of over 900 basis points per annum and superior risk-adjusted returns since its launch at the end of 2014.