ASEAN shines as investor destination

Published on 07.09.2014

The managing director of DCG Capital says the region’s economic prospects look bright, as there is an insatiable appetite for developmental needs, particularly in South-east Asia.

“The ASEAN markets have been the better-performing ones in the last four, five years,” said Mr Daniel Chan. “We’ve been able to invest in a lot of good ideas in the Philippines, Indonesia, Malaysia and Thailand.”

The MSCI South East Asia Index grew 11.11 per cent for the year to date, outperforming most regional indexes in the developed and emerging markets except those for Latin America and the Caribbean.

With the ASEAN Economic Community (AEC) expected to be in place by the end of next year, greater integration of markets will give a further boost to stock markets, said Mr Chan, the former chief investment officer at UOB Asset Management and ex-chief executive at the OCBC unit Lion Global Investors.

“If and when the AEC finally takes off, it would create a very big market; it’ll be easier for companies in the region to do cross-border business.”

Mr Chan is putting the money where his mouth is, with the DCG Asia Value Fund investing almost half its funds in South-east Asian countries, including Singapore, the largest exposure by geographical segment. Leaving out the 19.9 per cent investment in Singapore, the fund still holds 28.7 per cent of its assets in the Philippines, Indonesia, Malaysia, Thailand and Vietnam, behind Hong Kong and China’s 32.1 per cent.

One country Mr Chan is avoiding for now is Japan, which is still struggling in the shadows of two lost decades of stagnant growth. “We still see a lot of issues in Japan, where you’ve got an ageing population, a lot of structural rigidities in the system in terms of labour laws and high debt levels.”

The DCG Asia Value Fund has grown from about $10 million at its inception in September 2011 to $70 million, with an annualised return of 20.4 per cent.

DCG Capital has also partnered Fortune Capital Management where it launched a syariah-compliant Asia ex-Japan equities fund late last month.

Q: Which sectors are dominating your fund now?

The consumer sector is a big area of focus because that is the kind of bread-and-butter business that is relatively easy to understand, unlike say high-technology companies where product cycles are very short. People do need to consume staples, discretionary or luxury items, so that tends to be a big area. We also look at industrial companies, they could be in the oil and gas business, transportation or logistics.

Q: You seem quite bullish on Hong Kong/China, with a sizeable proportion of your investments there. Are you not worried about a slowdown in the China growth engine and the property bubble?

It’s the result of our bottom-up stock selection process, with cheap stocks there. Hong Kong and China, as a whole, are a relatively big market. China is now the second-largest economy with more growth opportunities.

Most of our exposure is not so much in the Chinese residential companies, but more in the investment and commercial properties, which are trading at deep discounts.

The discounts are there because of this fear of the property prices and an oversupply of units, and we are careful and aware of such risks.

Q: What about Singapore stocks, which sectors are doing well?

What we are now holding are things like firms in the oil and gas sectors.

Most of the property stocks are trading at a discount to their asset value, but the outlook, especially for the residential market, is still quite gloomy, at least for the next couple of years. The physical supply is still there and I think a lot of home buyers are quite stretched.

As for banks, it’s very hard to differentiate between the three local banks, they kind of take turns (to do well), like if one lags behind then it will try to catch up. If you look at the PE (price to earnings) valuation, the cheapest now is DBS, at about 1.2 price to book value.

In general, there isn’t much to get excited about the local banks because their interest margins are still very thin, at about 1.7 per cent, and their exposure to the Singapore property sector is a concern.

Q: There’s been much talk about syariah- compliant funds taking off in a big way, but there seems to be lukewarm interest here, so why launch such a fund?

The target market is more investors from the Middle East and this region.

The available pool of funds to invest in syariah-compliant funds is arguably quite big if you look at the GCC (Gulf Cooperation Council) countries, like Saudi Arabia’s institutional investors. But the availability of good-qualitysyariah-compliant products is not there. There aren’t many syariah-compliant funds here.

We are sitting in a region where there’s also potentially a need for institutional investors, high-net-worth individuals in Indonesia, Malaysia, Brunei to invest in syariah-compliant funds. So it’s a relatively untapped field in that sense.

Countries: Singapore
Topics: Insights & Statistics
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