While global asset prices have rebounded strongly since the depths of the Covid-19 crisis in March, valuations in Southeast Asia have heavily lagged those elsewhere. The MSCI Asia ex-Japan index rose 8.36% in the year to October 31, while the MSCI Asean was down 21.98% over the same period.

Jeffrey Jaensubhakij, group chief investment officer of Singapore sovereign wealth fund GIC, sees this as a clear long-term investment opportunity. But he also recognises the challenges that the less developed Asian countries face in recovering from the pandemic.

After the Covid-driven crash in March, asset prices have soared even higher in many sectors than they were before the pandemic hit, he pointed out during a panel discussion last Thursday (November 12) at the Greenwich Economic Forum.  

Jeffrey Jaensubhakij

“[Such assets don't] look like a tremendous opportunity to us,” Jaensubhakij said. “But there are a lot of sectors for which valuations have lagged, [or] haven't come back at all. Those are where there may still be opportunities to put money back to work.”

That includes certain emerging markets, such as some in Asia that have had a “pretty tough time in terms of battling Covid”, resulting in a negative impact on asset valuations. “There are opportunities in these countries and these sectors to put additional money to work in 2021,” he added.

Sector-wise, technology, healthcare and logistics are clear examples of outperformers amid the pandemic, while travel- or hospitality-related businesses have suffered. 

Jaensubhakij did not explicitly specify any countries, but he was clearly not referring to the major North Asian economies. China, Japan, Korea and Taiwan have coped relatively well with coronavirus and their equity markets have rebounded strongly. Similarly, Indian stocks are above where they started the year, despite the country struggling more with a broader outbreak of Covid-19. That is not generally the case for Asean markets.

Indonesia and the Philippines have been the hardest hit in Southeast Asia, recording around 15,000 and 7,800 deaths from the virus, respectively as of November 15. Their stock markets were down 13.0% and 11.4% for the year to November 13. Even in Singapore and Vietnam – which have so far reported just 28 and 35 Covid-related dealths, respectively – listed equities are down 16.6% and flat for the year.

Still, while Southeast Asia's GDP is forecast to shrink 3.4% this year, it is set to rebound by 6.1% in 2021, according to the IMF’s latest projections last month.

DIVERSIFYING SUPPLY CHAINS

One area where some Asean economies are seen as likely to benefit is from an expected diversification in supply chains away from China. Factors driving this include the Sino-US trade war last year and corporate concerns about over-reliance on production in China and a desire to reduce costs.

Countries such as India, Indonesia and Vietnam seem “natural recipients” of manufacturing facilities if companies decide to shift their sourcing and production setups, Jaensubhakij said.

While this trend is likely to result in some re-shoring of production to home markets, many companies are turning to other Asian economies as alternatives, such as Taiwan, India and Asean, GIC said in its 2019/2020 annual report, released in July.
 
"For example, registered foreign direct investment in Vietnam has picked up pace since the US-China trade war started in late 2018," it added.
 
Moreover, the Regional Comprehensive Economic Partnership (RCEP), signed yesterday (November 15) by 15 Asian countries, looks set to be a further boost for the region. One of the world's biggest free-trade agreements (FTAs), it includes the 10 members* of Asean, plus five countries with which Asean has FTAs: Australia, China, Japan, Korea and New Zealand.
 
India, the sixth to have an FTA with Asean, pulled out of RCEP talks in November last year, citing that China was not providing reciprocal market access, among other concerns. 

Despite Jaensubhakij’s optimism about the prospects for emerging Asian economies, he sounded a note of caution. For many emerging markets, he conceded, this year and perhaps also the coming one will be “a tough slog”.

“There are still many healthcare issues that need to be managed,” he added. It will also take time for the borders to open and foreign investors to come back, “to allow interest in the economy to pick up again”.

Indeed, many have made the point that some of the poorer large developed nations have particularly struggled to combat the spread and treatment of the virus and may take a lot longer to receive widespread distribution of the vaccine. And that will hamper their economic recovery as a result of both less domestic consumer spending and lower foreign investment inflows.

Arleen Guevara, CIO of Manila-based insurer AIA Philam Life, told AsianInvestor in October that she was uncertain how quickly the Philippines, as a developing country, would gain access to the vaccine.

When contacted by AsianInvestor, a spokesman declined to say whether GIC had recently increased or would increase its Asean exposure, given Jaensubhakij's comments last week. The fund, put at $488 billion by US research house Global SWF, is 19% invested in Asia ex-Japan but does not break that down further to Southeast Asia.

* Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.