A Straits Affair
Think of investing in Asia and markets like China and India immediately spring to mind. China seems to be preoccupying everyone. And why would it not with the Shanghai Composite Index more than doubling over the last 12 months, thanks largely to nearly 90 million retail investors. Their hunger for a piece of the action has caused share prices to skyrocket.
However, things are not looking so rosy at the moment. In February, the Shanghai Composite tumbled 9%. And after hitting another record high on May 29, the extremely volatile index has lost almost 7% as of June 8. Some analysts are anticipating yet another sharp correction. Norman Chan, director of PCM Capital Limited says, “We expect Shanghai to find major support at around 3,300, but at the moment there still is five to eight percent further downside.”
For investors, who are less than thrilled to ride the Chinese stock market rollercoaster, the good news is, that you have options – very good ones at that.
In fact, many investors are already channeling their funds out of markets like China and into ‘safer havens’. Malaysia and Singapore are the top two beneficiaries of this capital outflow, capturing just over US$1.6 billion worth in investments. The Straits Times Index hit a fresh high of 3579.35 points on 4 June while the Kuala Lumpur Composite Index hit a record 1372.38 points just this past Thursday (7 June). Both indexes have gained more than 40% over the past 12 months.
There are other reasons why Malaysia and Singapore are favored by investors. Compared to their South East Asian neighbors, the two countries boast of having the highest gross domestic product growth, with inflation kept in check.
Also worth considering is Singapore’s success in navigating through troubled periods like in the Asian Financial Crisis. This is largely attributed to well-crafted micro and macroeconomic policies and comprehensive corporate and financial regulations, traits that continue to serve Singapore well to this day.
Malaysia was more severely affected by the financial crisis in comparison to neighboring Singapore. However, in the last decade, the corporate debt-to-equity ratio of ailing Malaysian companies has been sharply reduced. Nonperforming bank loans have been brought down to a more manageable level, and GDP has been restored to pre-crisis levels of around US$100 billion.
“You are starting to see recovery take place … you are starting to see an improvement in industrial perception, you are also starting to see the government starting to do things positively to attempt to attract investment,” says David Roes, CEO of ASEAN Investment Management. And that is the icing on the cake to invest in the Malaysia and Singapore markets.
|Fund Size||S$885.32 Million|
|Management Fee||1% per annum|
The UOB UniFund was launched in April 1986 and is denominated in Singapore dollars. Frederick Wong, Director of UOB Asset Management, said that the fund’s strategy is to ride on the long-term structural theme for Asia and apply that to Singapore and Malaysia. He is very positive on these two countries and expects the timeline for returns to be about six to 12 months.
“Malaysian companies offer superior earnings growth and positive earnings revisions. Besides, some companies are in the initial stage of gains due to restructuring. Also, Singapore’s economy should grow above long-term growth rates over the next few years,” he noted.
Just over 60% of the UOB UniFund’s investments are Malaysian listed companies. Wong said that companies are selected based on their absolute returns above a certain hurdle rate. “There is a bias towards Malaysia because we are able to find more companies that meet our projected hurdle rate,” he said.