Asean insights – Country weighting changes
Today we issue the first edition of The Best of Asean - a new product that looks at where to find value in some of Asia's highest growth countries.
Our regional strategy team changed its country weightings last week. Country allocations are harder as we are spoilt for choice. Our internal debates have been around whether we should be positioned in countries that are genuinely booming already but where valuations are rising (Malaysia, Singapore, Hong Kong, China, Philippines) or those that are just starting to join the party and where valuations remain compelling (Taiwan, Korea, Indonesia). We favour the second group and also stick with Singapore because of the opportunities in the banking sector. Hence we have Indonesia and Singapore within Asean as overweights in our regional model portfolio.
ASEAN focus – Malaysia, Thailand and Phil banks
In Malaysia, we believe the changes in the recent 2008 Budget to the tax and savings policies are highly positive for the economy. Stocks that could raise dividends include Digi, Public Bank, B Toto, BAT and Gamuda.
History suggests that the Thai market usually rallies ahead of a general election, with positive returns over three months for the SET prior to seven of the past eight general elections. Financials (banks, fincos and property) and the traditional high beta sectors are best placed we believe.
Our recent work on the Philippine banking sector examines what impact higher NPLs and lower coverage ratios could theoretically have on book values. We essentially derive an adjusted book value for the Philippine banks. On adjusted book value alone, the cheapest banks are CHIB, Security Bank, and BDO.
Asean ideas of the week – Switch out of IOI Corp (IOI MK, RM$5.90, Neutral, target price RM 6.00) into London Sumatra (LSIP IJ, Rp6,900, O/P, target price Rp8,500). We also like the soft commodity theme and revised our target prices for Olam (OLAM SP, S$3.14, O/P, target price S$3.57).
Asean top ideas – Our top two country picks in ASEAN are given below. The rest of our country picks are on pages 2 and 3.
Source: Bloomberg, Macquarie Research, September 2007
