Private credit might be less attractive than it was last year as investors rush into the market, but there are sweet spots to be found.
The Baring Asean Frontiers Fund will invest mainly in Southeast Asia, but will also have a small exposure to Greater China. The fund is the result of demand from BaringÆs clients for exposure to the opportunities available in the smaller and faster-growing markets in Asia.
ôMore than a decade on from the Asian financial crisis of 1997, we believe AsiaÆs tigers are ready to pounce again,ö says SooHai Lim, the Hong Kong-based manager of the Baring Asean Frontiers Fund. ôGovernment and corporate balance sheets have restructured, current account deficits have turned into surpluses, fiscal deficits have been reined in, and local currencies are on the rise.ö
Lim isnÆt just talking theory when recalling the history of financial markets in Southeast Asia and comparing that to developments over the past decade. He has been investing in select Asean markets for more than a decade and had exposure to Thai equities at the height of the 1997 crisis triggered by the devaluation of the Thai baht.
Baring Asset Management believes the markets with the greatest growth potential include Singapore, Malaysia, and the Philippines. ôWe think this is an exciting block of countries to look at,ö says Lim.
With a total population base of over 550 million, and a combination of rich natural resources and world-class business expertise, the fund house expects the major Asean economies to deliver stronger growth in the medium- to long-term.
Most investors have focused on ôthe remarkable changes taking place in Chinaö, says Lim, neglecting other markets in Asia. (In February, Baring Asset Management launched the Baring China Growth Fund and the Baring China Select Fund, which invest in companies that stand to benefit from the economic growth and development of China.)
Singapore, for example, is arguably the most developed market in Asia ex-Japan and has repositioned itself as an alternative private banking centre for wealthy Asians and investors from the Middle East and Europe, Lim says.
Lim likes Singapore because valuations are attractive and, with inflation on the rise, there are risks that policy errors might take place in other markets in the hands of less experienced policymakers.
ôSingapore has had a good track record of policy execution, so we are comfortable that they will actually be able to take the right measures to handle this,ö he says.
Indonesia, Malaysia and Thailand, meanwhile, are major suppliers of commodities to their neighbours in Asia.
ôWe like Indonesia on a longer-term basis because it has the population base to be a sizeable consumer market,ö Lim says. ôIt is also a huge commodities exporter. It exports a lot of coal, exports a lot of palm oil and therefore is an indirect beneficiary of the rise of China and India.ö
Other markets have their own appeal. The PhilippinesÆ ômost successful exportö is its well-educated English speaking population found all around the world, Lim says, and this is underwriting an economic boom back home through the remittance of their hard-earned savings.
Around 80% of the Baring Asean Frontiers Fund will be invested in the ôcoreö Asean markets of Singapore, Malaysia, Indonesia, Thailand and the Philippines. Around 10% will be invested in the up-and-coming frontier markets such as Vietnam and the non-Asean markets of India and Sri Lanka. The balance will have exposure to the non-Asean market of Greater China.
ôThe fundÆs exposure to Greater China and the frontier economies allows investors to benefit from the changes taking place there,ö Lim says. ôVietnam, for example, is emerging as an attractive, low-cost alternative to China for companies looking to diversify their manufacturing. With growth forecasts looking favourable, we believe VietnamÆs nascent equity market could well follow ChinaÆs meteoric rise.ö
The Irish-domiciled fund will employ an actively managed strategy using a growth-at-a-reasonable-price investment philosophy, but will be benchmarked against the MSCI Southeast Asia Index. The portfolio is expected to have around 40 to 50 stocks.
The portfolioÆs predecessor, the Baring Pacific Fund, was launched in 1978. Most recently, it was managed by Henry Chan, head of Asian equities at Baring Asset Management. It invested in the Pacific and Pacific Rim region including Australia, Chile, Hong Kong, Indonesia, Japan, Korea, Malaysia, Mexico, New Zealand, Singapore and Thailand.
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