Mirae-Asset-2012-Global-Outlook-on-Emerging-Markets

413 views

Published on

We love the all-encompassing reports from Mirae Asset. they reflect broad competence in delivering......the fact that smaller countries (as a group) deliver more growth. This is a tautology only demonstrating what has happened since the dawn of time. Reach out to Pamria to understand specific investment options. Capture growth, asset allocate, and for the truly bold, we have specific recommendations. info@pamria.com

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
413
On SlideShare
0
From Embeds
0
Number of Embeds
7
Actions
Shares
0
Downloads
5
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Mirae-Asset-2012-Global-Outlook-on-Emerging-Markets

  1. 1. Mirae Asset Global Investments2012 Global Outlookon Emerging MarketsEmerging Market Experts
  2. 2. About Mirae Asset Global InvestmentsMirae Asset Global Investments is one of the world’s largest investmentmanagers in emerging market equities.* With over 650 employees,including more than 125 dedicated investment professionals, MiraeAsset offers a breadth of emerging market expertise. Mirae Asset’soffices are located in Hong Kong, China, Korea, India, Taiwan, Vietnam,Brazil, the U.K. and the U.S. The firm manages approximately $45 bil-lion in assets globally, of which more than $17 billion is invested inemerging market equities.**www.miraeasset.com*Source: Investment & Pensions Europe, January 2011**As of September 30, 2011
  3. 3. 2012 Global Outlook on Emerging MarketsTable of Contents Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Global Emerging Markets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 China. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 India. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 ASEAN (Association of Southeast Asian Nations). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Korea. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Latin America. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 EMEA (Europe, Middle East, Africa). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 CE3 (Czech Republic, Hungary, Poland). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Turkey. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 South Africa.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
  4. 4. 2012 Global Outlook on Emerging MarketsExecutive Summary n Increased levels of volatility have enveloped global equity markets in the second half of 2011. Contagion in the euro zone and fiscal uncertainty in the US have weighed on stock prices and future growth prospects globally. n nflationary pressures have abated across emerging market countries on the I back of a slowdown in global growth. Food and commodity prices have fallen from their early 2011 peaks, which has resulted in a drop in consumer and producer prices. n n anticipation of weaker demand and slower growth from developed markets, I central banks in emerging market economies have begun to loosen monetary policy. We expect this trend to continue into the first half of 2012, as the macro environment remains unclear. n aluation remains attractive across emerging market equities, relative to their V developed market counterparts. Price-to-earnings ratios are below long-term historical averages and close to 2008 lows. n merging market equity fund flows, while negative for the year, are likely to E reverse course modestly in 2012 given attractive valuation and resilient eco- nomic growth in the region, although risk appetites will remain suppressed until a clearer resolution of the euro zone debt crisis materializes. E m e rging Mar k et Exp e rts 1
  5. 5. 2012 Global Outlook on emerging markets Global Emerging Markets Increased volatility in equity markets Global markets have seen extraordinary levels of volatility in the second half of 2011. Fiscal and regulatory uncertainty across the developed world has roiled markets and hampered growth prospects. Standard Poor’s (SP) down- graded US sovereign debt below AAA for the first time in history, while the euro zone sovereign debt crisis engulfed France, Italy and Spain. US consumer confidence has dropped to crisis-level lows,1 and the Misery Index2 is at its highest in nearly 30 years. Emerging Markets have underperformed the developed world in 2011 160 140In the absence of stark 120headlines from the devel- Index 100oped world, investors willrefocus on underlying 80fundamentals of the 60emerging markets. 40 07 08 09 10 11 20 20 20 20 20 MSCI Emerging Markets Index MSCI World Index Past performance does not guarantee future results. Source: Thomson Reuters Datastream MSCI EM Index and MSCI World Index levels rebased to 100 on 11/15/2006 Conference Board Consumer Confidence Index fell to a two-year low of 39.8 in October 2011. 1 2 M isery Index is an economic indicator calculated by Bloomberg that combines US inflation and unemployment levels. w ww. mir a e as s e t.com 2
  6. 6. 2012 Global Outlook on emerging marketsThrough mid-November, the MSCI Indonesia outperformed developed and emerging equity marketsEmerging Markets Index was down15.8%, compared with a loss of 6.9% for a 10 si nethe MSCI global benchmark.3 The biggest do In a ld r ic orunderperformers are Brazil, Hungary and 5 M 0 Af ry IW IE 50 co nd a ga y h na il si ke Equity Index Performance, YTD (%) SC SC a i ut az la P ex un sPoland, with each down more than 20% di hi r S Ru Po So Tu Br M M M In C H 0for the year. Indonesia has been the brightspot among emerging market equity -5performance with a year-to-date gain ofnearly 4.5%.4 Robust Gross Domestic -10Product (GDP) growth, strong domestic -15demand and declining inflationary pres-sures have boosted economic growth -20and profit forecasts for Southeast Asia’slargest economy. -25 Return, YTD, as of 11/15/11Recently, progress made at the EU -30summit, positive economic data from the Past performance does not guarantee future results. Source: BloombergUS and China and strong corporate YTD equity returns through 11/15/2011 Individual country performance data from MSCI indicesearnings growth helped to buoy globalequity markets. The CBOE Volatility Index(VIX) traded below 30 for the first timesince early August on the back of a VIX Spiked in second half of the yearcomprehensive euro zone package agreedupon by EU officials, although political 50 2011uncertainty since the announcement has 45once again driven volatility higher. Whileinvestor sentiment is slowly beginning to 40improve, the global macro trend remains 35unclear. We expect markets to remain Indexvolatile into early 2012, as the euro zone 30crisis continues to unfold. In the absence 25of stark headlines from the developedworld, investors will refocus on underlying 20fundamentals of the emerging markets. 15 10 n b ar r ay n l g pt ct Ju Ap Ja Ju Au Fe O M Se M Chicago Board Options Exchange Volatility Index Source: Thomson Reuters Datastream 3 M SCI World Index includes all developed world markets. 4 B loomberg, as of 11/15/11. E m e rging Mar k et Exp e rts 3
  7. 7. 2012 Global Outlook on emerging marketsEurope remains biggest Japan has recovered remarkably quickly the US and Europe in the second half ofdownside risk from the devastating earthquake and the year have helped to cool inflationaryThe euro zone sovereign debt crisis tsunami in March that paralyzed the pressures in large, emerging marketremains the biggest downside risk facing country’s global supply chain. Output economies like China and Brazil.the global economy. Markets have improved significantly over the months Declining commodity and food pricesendured months of heightened instability following the natural disaster before have led the drop in consumer andas European politicians struggle to avoid dropping off steeply on global growth producer prices in the second half of thea disorderly Greek default and contagion concerns. In 2012, GDP growth is year. The UN Food and Agriculture Worldacross core euro zone economies. expected to rebound sharply on the Food Price Index has fallen more than 9% normalization of the country’s industrialIn light of the current situation in Europe, from its February 2011 high. The dairy production chain and the base effect ofwe expect to see a mild recession in the and sugar components, which together negligible growth in 2011. Consensusregion and very weak growth into 2012. account for 24% of the index weight, estimates now forecast a 2.5% year-over-Political uncertainties will persist until a have each fallen more than 13% this year. year change in real GDP in 2012.7final resolution comes to pass, and Among commodities, we have seen amarkets will fluctuate accordingly. As 13.5% drop in the SP GSCI Spot Index Inflationary pressures ease from its April high. Gold and Brent CrudeEuropean banks are forced to recapitalize,they will likely sell assets to shrink their In the first half of 2011, concerns over have outperformed, with year-to-datebalance sheets and tighten lending inflation plagued emerging market gains of 21.3% and 15.6%, respectively.standards. Tensions within sovereign countries. Food and commodities costs Cotton, nickel and wheat have seenbond markets will keep funding costs at spiked, and central banks tightened sharp drops of more than 20% overhistorically high levels. monetary policy accordingly. Decreased the same period.8 export demand and slower growth fromGrowth in the US has been slow butsteady, and we expect the trend to Inflationary Pressures declined across emerging Marketscontinue. GDP growth in the third quartercame in stronger than expected at 2.0% 100annually. Corporate earnings have been 2011strong in the third quarter, as 73.4% of Inflation Rate (MoM change, bp) 75SP 500 companies that have reportedearnings beat consensus estimates.5Still, growth forecasts have been revised 50downward by the FOMC. Real GDP isnot expected to exceed 3% in 2012, 25and unemployment and inflation forecastswere revised higher — even in theirlong-term projections. Fed Chairman 0Ben Bernanke emphasized that interestrates would be “at least” zero through -25mid-2013 and confirmed that buying n b ar ay n l g t ct r Ju p Ap Ja Ju Au Fe O M Se Mmortgage-backed assets was a “viableoption” if conditions were “appropriate.” 6 Weighted Average Inflation Rate Source: Thomson Reuters Datastream, World Bank Inflation rates of Brazil, China, India, Indonesia and Russia included in weighted average calculation 5 Bloomberg, as of 11/15/11. 6 Federal Reserve, Federal Open Market Committee. 7 Bloomberg, as of 11/15/11. 8 Bloomberg, as of 10/31/11. w ww. mir a e as s e t.com 4
  8. 8. 2012 Global Outlook on emerging marketsIn China, the consumer price inflation rate Growth Forecasts ARE mixed in 2012has declined steadily to 5.5% year-over-year in October from a high of 6.5% in July, 10and we expect the trend to continue into 92012. Housing prices have plummeted 8 Real GDP Growth (YoY change, %)from their highs in April. Property transac-tions dropped 25% in October from the 7prior month, and new residential housing 6starts declined for the first time this year 5over the same period.9 Producer priceshave declined consistently over the second 4half of the year, with October growth at 35.0% year-over-year. We expect the trend 2to continue into the first quarter of 2012. 1Inflation in Brazil and India remains 0elevated and has been an overhang on ld 10 . il na a a o ia a a nd y .S az ke di si ric re ic ss orthe economies, although we believe both hi G la U ne ex In Ko Br r Af W Ru C Tu ai do M Th h h ut ut Inhave peaked. Weakening global demand So So Expected GDP in 2011 Expected GDP in 2012and declining input prices will help tobring inflationary pressures lower. Source: Bloomberg Consensus forecasts as of 11/15/2011 G10 countries include Belgium, Canada, France, Germany, Italy, Japan, Netherlands, Sweden, Switzerland, United Kingdom and United StatesEconomic growth in emerging marketsoutshines the world Weak growth beleaguered the developed Wen Jiabao emphasized that China will Emerging markets remainworld during the second half of 2011 and “fine-tune” its macroeconomic policiesis forecast to weaken into 2012. The IMF in order to maintain “reasonable” credit a bright spot in the globalslashed its 2012 growth forecasts for all growth. Markets reacted positively to the growth story.G7 countries and is predicting GDP 10 hint of policy change from the premier,growth of less than 2% for the US and as the MSCI China Index outperformedeuro zone economies.11 Emerging the MSCI AC World Index by more thanmarkets, however, remain a bright spot in 5% since the announcement.12 Thethe global growth story. somewhat unexpected cut in the reserve requirement ratio at the end of NovemberChina reported a third-quarter GDP illustrated a marked change in monetaryincrease of 9.1% year-over-year, compared policy positioning of the People’s Bankwith 9.4% cumulative year-over-year of China (PBOC). Chinese leaders havechanges as of the third quarter. Concerns finally started to respond to a shiftingover a hard landing for the Chinese global environment of slower growtheconomy have abated in light of encour- and lower inflation.aging economic data and a likely easingof monetary policy. Chinese Premier 9 National Bureau of Statistics of China. G7 countries include Canada, France, Germany, Italy, Japan, United Kingdom and United States. 10 IMF World Economic Outlook, September 2011. 11 Bloomberg, performance from 10/25/11–11/15/11. 12 E m e rging Mar k et Exp e rts 5
  9. 9. 2012 Global Outlook on emerging markets Central Bank began loosening monetary policy 75 2011 50 Change in Benchmark Interest Rate (bp) 25 0 -25 -50As volatility abates, weexpect the market to -75 ar r ay n b n l g pt ct ovrefocus and return to Ap Ju Ja Ju Au Fe M M O Se Ntrading on fundamentals. Brazil China India Indonesia Russia Past performance does not guarantee future results. Source: Bloomberg Benchmark interest rate changes through 11/15/2011 In anticipation of a global economic its reference rate by 25 basis points in slowdown, central banks across emerging October and 50 basis points in November. markets have begun slashing interest The Bank of Indonesia explained that it rates. Brazil has already made two was imperative for the country to be 50-basis-point cuts since August to “ahead of the curve in anticipating the bring the Selic rate to 11.5%. Indonesia, impact of the global economy.”13 which has reported GDP growth of 6.5% for the first, second and third quarters of 2011, surprised markets by lowering 13 Bank of Indonesia. w ww. mir a e as s e t.com 6
  10. 10. 2012 Global Outlook on emerging marketsAttractive valuations among Price-to-earnings ratios remain near record lowsequity marketsValuations look attractive across 45emerging markets, as price-to-earnings 40and price-to-book value ratios remain 35below historic long-term averages.14 Asvolatility abates, we expect the market to 30 P/E Multiple (x)refocus and return to trading on funda- 25mentals. The MSCI Emerging Markets 20Index now trades at a 12-month forwardP/E ratio of 11x, or 27% lower than its 15long-term historical average. The MSCI 10World Index trades at 13.3x and the 5SP 500 at 13.2x.15 0 96 99 02 05 08 11 19 19 20 20 20 20Inflows return to emerging market MSCI Emerging Markets Index MSCI World Indexequity funds Source: BloombergOn a year-to-date basis, outflows across As of 10/31/2011emerging market equities have reached$22.8 billion, compared with $40 billionin 2008. The BRIC region had the largestoutflow this year at $15.8 billion.16 Net fund flows ARE negative across emerging market equitiesRecently, emerging market fund flowshave begun to reverse course and trend 10,000positive, as market volatility subsides fromAugust peaks. Going forward, we expectmodest inflows to emerging market funds 2,500 Net Fund Flows (USD, mm)once the developed market turmoil is Equitycontained and investor risk appetite Bondreturns to pre-crisis levels. -5,000 -12,500 BRIC EMEA EM Asia LatAm -20,000 Source: EPFR Global As of 11/11/11 14 Average since January 1995. 15 Bloomberg. 16 EPFR Global as of 11/11/11. E m e rging Mar k et Exp e rts 7
  11. 11. 2012 Global Outlook on emerging markets China Concerns over growth slowdown are overdone China has been a growth story for global equity investors for decades. Gener- ally speaking, in good years driven by bull markets, it has tended to outperform other stock markets. The reverse has been true in bear markets. Amid the domestic tightening, as well as China is going through a period of weakening external demand, investors economic transition, and GDP growth have been increasingly worried about the going forward is expected to be lower potential sharp slowdown of GDP growth than in previous periods. Volatility, in China in 2011. As a result, the Hong however, should lessen as domestic Kong/China market declined to trough demand increases and certain industries level during the third quarter of 2011. upgrade themselves. Therefore, in our opinion, the huge swing we have seen in We believe that domestic macro condi-2012 will be the transitional investor expectations between economic tions in China are improving and that the overheating and fears of a hard landingyear of next-generation chance of a hard landing is very low. should gradually ease.political leaders, and also Inflation is under control and is expected to cool off gradually. On the policy side, Our cross-country analysis indicates thatthe second year of the we have already seen selective, supportive the slowdown of GDP growth does notcurrent 12th Five-Year Plan. movement on Small- and Medium-sized necessarily translate into lower stock Enterprises (SMEs), local government market returns. The stock market is just debt, railway funding and pilot tax reforms. more sensitive to a sharp economic slump. 2012 will be the transitional year of next-generation political leaders, and Financial system risks are controllable also the second year of the current 12th We believe China is in a stronger financial Five-Year Plan. As a result, we expect the position than the U.S., the European policy stance to become more supportive Union and many other emerging markets. going into 2012. Its government debt ratio is about half of GDP, including both national and local debts. This is relatively low compared to w ww. mir a e as s e t.com 8
  12. 12. 2012 Global Outlook on emerging marketsAdequate coverage ratios shouldprevent a deeply distressed banking sector 20 240 18 200 16 Nonperforming Loan Ratio 14 160 Coverage Ratio 12 10 120 8 6 80 4 40 2 0 0 China has maintained a 04 05 06 07 08 09 10 11 20 20 20 20 20 20 20 20 Nonperforming Loan Ratio Coverage Ratio positive current account Source: SSB, Wind as of October 2011 in the past decade, with foreign exchange reservesthe debt level of more than 100% in most We are not concerned about a nationwide growing steadily.of the developed countries. The solvency property bubble, as the current price-to-of local government is manageable based income multiple is about 6.4x. Althoughon stable fiscal revenue increases and the ratio is higher in big cities, we believe itnew issuance initiatives. reflects the supply shortage. For example, while there are more than 11 millionIssues related to nonperforming loans marriages a year in China, annual property(NPLs) have raised concerns over the sales are only about 9 million. Propertypossibility of a sharp slowdown in growth development and mortgages account forand negative real interest rates. We note, less than 20% of loan book exposure,however, that the coverage ratio should which points to less of a downturn threat.be high enough for the banking sector In addition, the aggressive social housingto endure any potential headwinds. plan should mitigate the supply/demandWe do not see the previous Wenzhou imbalance going forward.SME concerns as the nationwide case,with the evidence of robust private China has maintained a positive currentinvestment activities. account in the past decade, with foreign exchange reserves growing steadily to 48% of GDP by 2010. Hence, we believe that any currency risk is quite low. E m e rging Mar k et Exp e rts 9
  13. 13. 2012 Global Outlook on emerging markets Marriage rates outnumber property sales, highlighting shortage of housing in china 12,000 70 11,000 65 10,000 9,000 Urbanization Rate (%) 60 8,000 7,000 55 6,000 50 5,000 4,000 45 3,000 2,000 40 05 06 07 08 09 15 30 20 20 20 20 20 20 20 Married Couples (000) Property Sales (Units, 000) Urbanization Rate (RHS) Source: Ministry of Civil AffairsWe expect service sectors Portfolio Strategy the total shipment of smart phones to exceed that of PCs in 2012), the mobilesuch as tourism, entertain- As we enter the second year of China’s Internet space could have fast growth. structural transitional period, our corement, health care and strategy focuses on the following four 3. Green energy: China is one of theeducation to have vast major themes, which we call “B.I.G.S.” world’s major energy consumers andgrowth opportunities. 1. Branded consumers: Driven by carbon dioxide (CO2) emitters. Energy efficiency, measured by energy consump- structural changes in the economy, we tion per GDP, has been improving over expect labor wage increases to exceed the past decade, and the government is GDP growth, which could unlock the enforcing aggressive alternative energy consumption power inside China. plans to bring down further the fossil-fuel Increases in both middle-class and dependence of the economy. super-rich households, as well as greater interest by consumers in buying brand 4. Services: Urbanization is an ongoing merchandise, are all expected to support process, with both the size and number branded consumer goods. of cities on the rise in China. We expect service sectors such as tourism, enter- 2. Information technology: Internet tainment, health care and education to users in China spend a longer time online have vast growth opportunities. than users in other countries. This may be partially due to the social demands of the In addition, if we see positive policy move- younger generation under China’s ments in 2012, we will look for cyclical one-child policy. With the increasing opportunities in policy-sensitive sectors penetration of smart phones (we expect such as financials and cyclical industries. w ww. mir a e as s e t.com 1 0
  14. 14. 2012 Global Outlook on emerging markets India Tightening has peaked With respect to monetary policy, we believe that the Reserve Bank of India (RBI) is likely done for the time being with rate hikes. Inflation is expected to come down from the current 9.5% to about 7% by February 2012 on the back of falling commodity prices and base effects. Because India’s economy is showing Falling costs could benefit signs of a slowdown, and the possibility corporate earnings exists of a global growth scare, the RBI Despite a robust growth in revenues, will likely adopt a wait-and-watch attitude corporate earnings have been under through spring of 2012. In fact, if the pressure because of higher raw material developed world goes into recession in prices and the interest rate burden. We 2012, we may see the RBI cutting interest believe that revenue growth may slow, rates in April or May. although declining raw material costs and interest rates will likely act as positive catalysts in 2012.domestic demand will help to protect We see a GDP growth rate in India ofIndia from effects of a global slowdown around 7% to 7.5% for fiscal year 2012 50 (March-end) and around 7% for fiscal year 2013. Although these growth rates are lower than in previous years, they would 40 make India the second-fastest-growing(% of GDP, 5-year moving average) Exports of Goods and Services economy in the world after China, with a 30 GDP of at least $1 trillion. We continue to believe that domestic demand will be the 20 key theme over the next three to four years, with the rural/semi-urban economy growing faster than its urban peers. 10 0 92 94 96 98 00 02 04 06 08 10 19 19 19 19 20 20 20 20 20 20 South Korea China India Source: Thomson Reuters Datastream E m e rging Mar k et Exp e rts 11
  15. 15. 2012 Global Outlook on emerging markets Portfolio Strategy rekindles a positive investment climate by facilitating foreign direct investment (FDI), Within sectors, we like companies that fast tracking the award of coal mine are good rural economy plays, such as permits and clearing pending projects. tractors, two-wheelers, fertilizers and agrochemicals. Government expenditure Since 2012 will be a year of slow growth allocation on key rural schemes has rather than a deep recession for the jumped five to six times over the past five developed world, in our opinion, we are years. We also favor consumer staples neutral on the IT sector because we companies in underpenetrated categories believe that companies, particularly in such as cigarettes, household insecticides financial and retail businesses, will and hair colorings. continue to use IT to stay competitive and enhance productivity. We remain under- As monetary headwinds recede and weight on oil and gas as headwinds from policy paralysis by the government ends, the global growth slowdown remain high. we are likely to increase our exposure toIn the near term, both the financials into the first half of next year, as The MSCI India Index is forecast to we believe that the sector should outper- trade at 13.5x 2012 earnings, with afiscal deficit and the current form in 2012 after its underperformance 6.4% growth rate in earnings per share.account deficit remain in 2011. In the near term, both the fiscal Any further upside will be contingent deficit and the current account deficit on positive policy action from theconcerns that we believe remain concerns that we believe can be Indian government.can be overcome. overcome if the Indian government Price-to-earnings ratios in India have declined throughout 2011 35,000 30,000 25,000 20,000 Index 15,000 10,000 5,000 0 00 02 04 06 08 10 20 20 20 20 20 20 9x 12x 15x 20x 25x Actual Source: Bloomberg w ww. mir a e as s e t.com 1 2
  16. 16. 2012 Global Outlook on emerging markets ASEAN Association of Southeast Asian Nations Growth story remains intact Following a strong performance in 2010 and 2011 by the ASEAN region, we believe that ASEAN markets will take a breather and that GDP growth rates will moderate on the back of slowing growth rates in developed markets. The slowdown will be less severe than in previous downtrends, however, as a result of increased dependence on China and India. Despite the near-term slowdown in GDP looking policy regimes, as well as relatively growth, the long-term story for the region sound macroeconomic health as a result remains intact. The potential for growing of a low debt-to-GDP ratio, fiscal deficits demand from a population of 500 million and current account surpluses. Finally, the is a strong point for the region. Other region is also likely to benefit because of positive indicators include stable, forward- the export of commodities such as Indonesian coal and palm oil, Malaysian Foreign Reserves have increased dramatically palm oil and Thai agricultural products. The central banks have accumulated 10 sizeable reserves over the past years, enhancing their ability to reduce volatility in the event of a sudden outflow in capital. 8 ASEAN countries have significantlyNumber of Months of Imports increased their months of imports coverage ratio over the past five years. 6 Inflation has remained manageable for the region at about 5%, and its trajectory should be lower with a correction in crude 4 oil prices. We believe that ASEAN central bankers will remain proactive to interest rate cuts if growth should fall under 2 pressure from the global slowdown. 01 02 03 04 05 06 07 08 09 10 20 20 20 20 20 20 20 20 20 20 Indonesia Singapore Thailand Philippines Malaysia Total reserves in months of imports (USD) Source: World Bank E m e rging Mar k et Exp e rts 13
  17. 17. 2012 Global Outlook on emerging markets Inflationary Pressures have moderated across the region 15 10 Change in CPI (YoY, %) 5 0 -5 09 10 11 20 20 20 Indonesia Philippines Malaysia Singapore Thailand Source: Thomson Reuters DatastreamWe believe that ASEAN Influx of manufacturing benefits Portfolio Strategy the region In terms of countries within the ASEANcentral bankers will remain The ASEAN region, particularly Thailand region, we favor Indonesia, Thailandproactive to interest rate and Indonesia, is benefiting from an influx and the Philippines over Singapore andcuts if growth should fall of manufacturing work from China and Malaysia. Key sectors in Indonesia Japan. For example, the shift in manufac- include financials, as well as consumerunder pressure from the turing from Japan has gained ground discretionary and media. The secularglobal slowdown. following the country’s devastating demand story in Thailand favors hospitals earthquake in March and the recent and retailers, while our exposure to strength of the yen. The reallocation from cyclical stocks comes partially from rig China is largely the result of sharp builders in Singapore and coal companies increases in wages in that country, in Indonesia. primarily in the low-cost manufacturing workforce. At the same time, the Philip- pines benefits by being the largest supplier of personnel for service industries such as hotels and airlines. The region has prospered because of a booming demand for both agricultural and hard commodities, as well as a rise in retail goods and autos. Meanwhile, Singapore is fast emerging as a preferred tourist destination because of its theme parks and casinos. w ww. mir a e as s e t.com 1 4

×