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Neoh Boon Sing

Neoh Boon Sing
Equity Analyst

Market Review ASEAN

March 2014

OVERVIEW

Global stock markets resumed an upward trend in March. The FTSE All World Index rose 0.59% month-over-month, led by strong US stock market performance in response to positive economic data and easing concern as the Fed signaled to keep interest rates low until early next year. The S&P 500 and Dow Jones Industrial Average advanced 0.84% and 0.93%, respectively, whilst the MSCI Emerging Markets Index jumped 3.07% over the month. In line with the regional markets, the ASEAN stock markets moved higher, with the Dow Jones ASEAN Islamic Total Return Index surging 2.77% over the month. Year-to-date, the index has gained 5.86%.

Malaysia

The trade balance posted a surplus of US$785 million in February, reversing a US$444 million deficit in January. The reversal was fueled by a 10% drop in imports, which more than made up for a 3.0% fall in exports. The trade data assuaged fears that the rebalancing of the current account will be jeopardised following the implementation of tighter limits on mining ore exports in January. Macro conditions for Indonesia have improved, with inflation dipping to 7.32% in March from 7.75% in February. The Indonesian rupiah strengthened 6.3% year-to-date, and international reserves increased to US$102.7 billion from US$ 100.6 billion a month ago. With the noticeable turn in sentiment on Indonesia, Bank Indonesia decided to keep the Benchmark Rate unchanged at 7.5%.

Indonesia

Economic data continued to show improvement, with GDP expanding 3.2% in the fourth quarter of 2013. The growth was driven by a pick-up in consumer spending, which was supported by a better labor market. In December, the unemployment rate fell to 6.7%, the lowest level in more than five years. Non-farm payrolls, on the other hand, increased at a slower pace of 74,000, missing the consensus estimate of 197,000. Having said that, the long-term trend remains steady as the economy added 182,000 jobs on average every month in 2013. Expecting a gradual recovery in the jobs market, the Federal Reserve pressed ahead with its QE taper by reducing its asset purchase by another US$10 billion to US$65 billion per month. The Fed funds rate, meanwhile, will be kept at 0-0.25% as long as the unemployment rate remains above 6.5% and the inflation rate over the next two years does not exceed 0.5 percentage point above the Fed's longer-run goal of 2%. It is worth noting that Janet Yellen replaced Ben Bernanke as head of the Federal Reserve on 31 January.

Market Indicators Current Value 1 Month YTD 1 Year
FBM EMAS Shariah (RM) 13,146 2.13% Up 1.20% Up 19.07% Up
FBM KLCI (RM) 1,849 0.99% Up -0.35% Down 14.35% Up
S&P 500 (US$) 3,376 0.84% Up 1.81% Up 21.86% Up
Dow Jones Industrial Average (US$) 16,458 0.93% Up -0.15% Down 15.66% Up
FTSE All World (US$) 271 0.59% Up 1.20% Up 17.23% Up
MSCI All Country World (US$) 411 0.50% Up 1.22% Up 17.26% Up
MSCI Emerging Markets Net TR (US$) 409 3.07% Up -0.43% Down -1.43% Down
Dow Jones ASEAN Islamic (US$) 2,339 2.77% Up 5.86% Up -6.92% Down

Current 1 Month Ago 1 Year Ago
Ringgit per US$ 3.26 3.27 3.09
Crude oil (US$) $101.58 $102.59 $97.23
Crude palm oil (RM) RM 2,718 RM 2,825 RM 2,340

Philippines

Bangko Sentral ng Pilipinas (BSP) will raise the reserve requirement of total deposits to 19% from 18% effective April 4, as the central bank continues to combat ample liquidity in the system. For the last few months, the money supply (M3) has grown more than 30% year-over-year, with February showing an increase of 36.4%. Overnight borrowing and lending rates, however, were maintained at 3.5% and 5.5%, respectively, albeit the window to keep policy accommodative is narrowing. In February, inflation eased to 4.1% from 4.2% in January, which was lower than the consensus estimate of 4.3% and largely due to a slower gain in the food basket, lower electricity rates, and lower fuel prices.

Singapore

The Purchasing Managers' Index (PMI) dropped slightly by 0.1 point to 50.8 in March, indicating slower growth for manufacturing activities. PMI for the electronics sector, however, inched up 0.4 of a percentage point to 51.6 in March, supported by higher production, inventory, and imports. In February, industrial production surged 12.8% year-over-year, with electronics and biomedical output leading the gains. Non-oil domestic exports also gained 9.1% year-over-year, which beat the 7.1% market estimate and was spearheaded by a sharp acceleration of petrochemicals (49.3%) and pharmaceuticals (21.8%).

Thailand

Economic conditions deteriorated in February amid prolonged political protests. Private consumption fell 2.5% year-over-year in February from -1.5% in January due to ongoing household deleveraging and income shortfalls following the economic slowdown. Private investment also dropped 7.7% year-over-year as businesses continued to defer investments, especially in the electronics, electrical appliance, automobile, and construction industries. On the bright side, exports rose 2.4% year-over-year, beating the market consensus of 0.2%, lifted by agriculture exports (3.4%), vehicles and parts (15.4%), and electronics exports (9.6%).

COMPANY REVIEW

Semen Indonesia (SMGR IJ) performed well in FY13, with total net income growing 11% year-over-year, backed by higher sales volume and average selling price.

BIMB (BIMB MK) posted another solid quarter, with total income growing 9.8% year-over-year, led by strong banking performance. Bank Islam was the pillar supporting the growth, with financing income growing 10.6% on a 21.7% increase in net financing assets.

PORTFOLIO TACTICS

The pace of ASEAN regional GDP growth is expected to ease in 2014 due to political uncertainties, rising interest rates, and increased inflationary pressures. Having said that, ASEAN remains one of the most rapidly growing regions of the global economy, with 1) rapidly growing numbers of middle income households, 2) strong growth in intra-Asian trade, and 3) massive expansion in infrastructure spending and urban development. Against the headwinds, we will focus on companies that have solid and long-term growth profiles, such as Consumers (e.g., Unilever Indonesia and Jollibee Foods), Health Care (e.g., Bangkok Dusit and Hartalega), Building Materials (e.g., Semen Indonesia) and Telcos (e.g., Axiata).

 

The information in this report has been obtained from sources which we believe to be reliable. We do not guarantee its accuracy or completeness. No liability can be accepted for any loss arising from the use of this report. All opinions and estimates expressed herein reflect our judgment as of this date and are subject to change without notice. This report is for the information of clients only. We, our directors, associates, clients and/or employees may have an interest in the securities mentioned herein.