Asean markets to shine ahead of US rate cut

PETALING JAYA: Asean economies, which are believed to have demonstrated resilience during high-rate cycles, are poised for growth in anticipation of a potential interest rate cut by the US Federal Reserve (Fed), according to a fund manager.

Eastspring Investments Asia equities portfolio manager Sundeep Bihani commended the resilience of Asean economies, particularly during the challenging times brought about by the Covid-19 pandemic a few years ago.

He noted the historical trend where Asean economies typically suffer when the United States raises rates.

“Asean economies’ balance sheets held up during the (Covid-19 pandemic) period. However, they might face pressure from the lag effect of the liquidity tightening in the United States,” he said during a panel discussion titled “Positioning for Asia’s longer-term re-rating confirmation” at a webinar yesterday.

“As the US interest rates start to fall, Asean would greatly benefit. Asean economies should shine,” Sundeep added.

On a broader context, Sundeep highlighted Japan-like market reforms, which emphasised the importance of enhancing shareholder returns and market value, spreading across Asia.

He pointed to South Korea as an example, where efforts are underway to increase dividend payouts and yield for minority shareholders.

Sundeep stressed on the need for tax reforms aimed at incentivising companies to distribute more dividends, especially for minority shareholders, ultimately fostering greater shareholder value and market stability.

Moreover, he said the proactive measures taken by governments in introducing reforms across Asia has left investors with more market confidence.

Despite these positive developments, Sundeep acknowledged the prevailing scepticism in the market regarding the number and durability of reforms.

“It is good to be sceptical, it is great that stocks have not priced in some of the reforms. Hence, the risk to reward is in your favour,” he said.

Identifying sectors with robust cash flows such as consumer and commodities, Sundeep encouraged investors to seek out big opportunities with low risk.

Additionally, Sundeep highlighted the role of corporate reform in driving better valuations across the region.

He said, as an investor, he would assess whether there is still room for improvement and enhancement in market conditions.Turning to China, Sunil noted a shift towards from high capital expenditure over the last few decades to a high operating cash flow.

Eastspring Investments head of equities in China Michelle Qi highlighted disparities in valuations between state-owned enterprises (SOEs) and private companies, emphasising reforms aimed at enhancing profitability and return on equity (ROE) for SOEs.“Ultimately, the strengthening of the ROE and profitability of the SOEs will help the Chinese market,” she said.

Despite challenges in the property sector, she expressed confidence in government stability measures. Qi indicated signs of economic recovery, particularly in manufacturing-driven sectors.She highlighted Chinese companies’ expansion abroad, even amid US-China trade tensions, seeking better margins in overseas markets.

While the value-driven reforms have been ongoing in China, the broader Chinese economy has likely reached its lowest point, with indicators showing improvement alongside rising consumer confidence.“I think the Chinese market has definitely seen the bottom after the liquidity sell-off in early January. Relative or absolute, we have already hit the bottom,” she added.

Meanwhile, ICICI Prudential Asset Management Co Ltd deputy chief investment officer (equity) Anish Tawakley expressed optimism in India’s market, which is already trading at a premium compared witho other Asian markets.

He attributed the optimism to a positive economic cycle and strong earnings growth ahead, especially with the potential benefits of urbanisation and home building.

“If urbanisation and home building occur, the benefits will flow into the manufacturing and other sectors,” he said.

However, he cautioned against internal risks such as housing bubbles and emphasised the importance of job creation to fully realise India’s urbanisation potential.

Tawakley highlighted the difference in urbanisation levels between China and India, noting that while the populations are similar in size, in 2022, approximately 900 million Chinese were in urban areas compared with 900 million Indians residing in rural areas.

This is in contrast to 1981, when urbanisation levels were comparable, with almost 200 million people in urban areas for both countries.