Ignore politics, go for strong firms, Aberdeen says

 

However, Aberdeen Asset Management, at its international conference with the worldwide press in London on May 26 and 27, assured investors there was still money to be made. Contrary to worries of the private sector over the military government’s slow implementation of infrastructure funds to boost the Thai economy, the company is telling its investors to ignore politics. 

“I think you have to ignore the politics as much as you can and also ignore the macroeconomic situation, so just concentrate on companies,” Martin Gilbert, co-founder and CEO, said at the conference. 

In his view, it is all about strong companies with strong fundamentals that can weather the storm. 

Obviously one must look at how the political situation could affect a company – for example, a bank strong domestically may be prone to recession – but from experience he said he had found investments made up to 25 years ago in the Kingdom still remained profitable.

Infrastructure is not everything, as seen in the case of India, where the market is up despite the country’s poor infrastructure system. However, he did admit such projects would provide a welcome boost to the quiet economy. 

This sentiment was echoed by Adithep Vanabriksha, chief investment officer of Aberdeen Asset Management in Thailand.

Via an interview by e-mail, he said that while the lack of modern ports, roads and railways had created a bottleneck for Thailand’s growth historically, concern was tempered with realism, and companies were not overly excited with expectations from the military. 

“For the very reason that Thailand has under-invested historically, investor hopes are not pitched high today,” he said. The same realism is reflected with the junta-ruled country following the military coup that took place on May 22 last year.

“There is no guarantee that elections will lead to stability,” said Adithep, but given that businesses continue to flourish in Thailand despite whatever political disruption that may have taken place over the past decades, Aberdeen Asset Management is confident. 

However, for foreign investors with no first-hand experience in Thailand, the situation may not be helpful and this is reflected in the weak levels of foreign direct investment, he said. 

Structural issues such as poor standards of education, English skills and productivity are also constraints, he added.

 

High household debt still |manageable 

In reaction to commercial banks facing increasing numbers of non-performing loans, Aberdeen Asset Management remains confident. 

Adithep said that although the level of household debt to gross domestic product had crept up to around 86 per cent as of the end of last year, the level was still manageable in the long term. 

In the short term, however, low economic growth plus the debt overhang could hinder household purchases, especially as sales of cars have been weak for several quarters.

With Aberdeen Asset Management having investment in banks in Thailand, Gilbert said in London that for investment in banks, one must look at those conservatively managed with the right management to know their customers. 

 

Don’t panic when Fed hikes rates

“Don’t panic when it happens,” he said, because whatever concerns have been raised, countries in general have already prepared themselves for the inevitable day. 

Gilbert advised investors not to sell on the day of market dislocation, but to ride out turbulence. The company’s head of Global Emerging Markets, Devan Kaloo, said in London that emerging markets which had been through tougher times would ride through the turbulence with lower global oil prices, and would rein in deficits by raising interest rates. 

Brett Diment, its head of Emerging Market Debt, added that well-managed emerging-market companies had had time to consider how to fund themselves if the Fed were to tighten, as most would be able to tap into local bank funding while the storm passed.

On the other hand, some economies would face troubles with strains on their debt and currencies, but this would just strengthen the case for diversification, he said. 

Top attractive markets 

Given the quiet market in Thailand and the underweight perspective of the country by Aberdeen Asset Management, high net-worth Thais continue to put their money abroad, such as in real estate in London. 

For the company’s Emerging Market Debt research analyst, Anthony Simond, four emerging markets – Mexico, Brazil, Indonesia and India – seem ripe for the picking. 

With favourable elections in Mexico, the company is keen on the reforms being made for the energy, financial, telecommunication and fiscal sectors. 

Given its proximity to the United States, Mexico could gain from the positive growth in its northern neighbour, he said. 

Despite scandals in Brazil, the country still has a good economic team with a clear mandate for the introduction of fiscal reform and the return of fiscal discipline to back where the country was five years ago, Simond said. 

Meanwhile, for those not wanting to stray too far, investors could look into India and Indonesia, he suggested. 

With a new government led by Prime Minister Narendra Modi, and the policies of central-bank governor Raghuram Rajan, India is becoming more attractive than ever. 

Both respected international policy-makers are expected to collaborate in reforms in infrastructure with the support of monetary policies, which in turn will support Indian assets in the medium term. 

 Last but not least, Indonesia’s new government led by the “man of the people”, President Joko Widodo, is expected to deliver big capital infrastructure spending, but there may be a time lag given the messiness of politics Widodo is facing, said the analyst. 

Overall, Aberdeen Asset Management is underweight in Asia, overweight in Latin America, and market-weight in Europe. 

The Philippines, Malaysia and Thailand are big markets, but not particularly compelling, in the company’s view. 

Go back to basics 

Head of Equities Hugh Young said there was a simple principle when it came to making money during a time of change – go back to basics. 

“Embrace businesses that are easy to understand,” he said, and look for companies with broad regional exposure, established franchises and solid finances. Also, seek out firms that respect minority shareholders and, once you find the right one, do not overpay, he stressed. 

Overall, the long-term case for Asia remained intact in spite of the immediate pressures from the expected US interest-rate increase, he said.