Barings has capped a strong year by winning a BENCHMARK Retail Top Fund Award in the ASEAN Equity category for its ASEAN Frontiers Fund.
The Fund was launched in 2008 and is managed by SooHai Lim and a team of analysts who bring different perspectives and a wealth of experience to the table. This commitment reflects Barings’ collective approach to asset management, as Lim explains.
Growth And Value Drive Stock Selection
“Our research philosophy is based on trying to identify unrecognized long-term earnings and growth,” explained Lim, “we manage the Fund on a bottom-up basis, seeking firms that can grow faster than the market.”
The team visits and talks to executives from more than 100 companies every year, which allows them to understand management plans, execution abilities and strategies. In turn, they see how these elements tie into their modeling of company’s earnings over a 3- to 5-year horizon. Lim also has an eye on valuations. He wants to avoid overpaying for the growth that the company can deliver for investors and therefore focuses on companies trading at reasonable prices.
Using Safety Nets
Risk management is key. At the company level, Lim says, “The first level of screening is based on the balance sheet to ascertain whether the company has strong cash flows. Leverage is also important, as too much debt could mean too much exposure to unexpected shocks.” The team also prices in country risks while investing. At the Fund level, this covers overall government policy, capital controls, and macro risks. Lim also looks at the strength of the company’s competitive position and margins. He assesses whether the firm has a record of good governance and mitigating business cycle risk.
At the portfolio level, Lim believes that liquidity is critical. He favors companies that are liquid enough so that the Fund can meet redemption demand, if necessary. Lim also considers the impact of macroeconomic variables on performance, “If the team is not comfortable with the overall exposure to these variables, they try to find tools to optimize the portfolio,” he noted.
“Environmental, Social and Governance (ESG) is also important,” says Lim and it ties into the whole investment process. Lim states that companies who comply with ESG standard are less risky and less likely to face lawsuits and environmental litigations.
Looking at the wider market, “Thailand was among the positive surprises in 2016,” says Lim, “Thai equities performed strongly, led by small and mid-caps, despite lackluster GDP growth concerns about the death of the king which led to short-term volatility.”
2017 will also see important elections in France and Germany. “The year looks to be quite uncertain,” says Lim, “this is because of the backlash against globalization in the US and potentially, elsewhere. Historically, Asian countries have benefited from global expansion. A rise in anti-trade sentiment could impact the region.”
An aggressive US rate hike cycle also poses a risk due to the potential effect on ASEAN currencies. Nevertheless, Lim points out that: “ASEAN is a fascinating and dynamic region, where we see many growth opportunities.”
What Makes ASEAN Special?
Lim explained that ASEAN countries have several advantages – demographic tailwinds and low gearing-to-GDP levels. This observation is particularly the case of younger countries, notably Indonesia and the Philippines. The team believes that ASEAN companies are well-placed to benefit from higher foreign investments, from Japan and increasingly China.
“We see a lot of exciting consumer businesses in Indonesia, Thailand, and Malaysia,” says Lim, “largely because of the booming middle class.” He also likes the infrastructure theme within ASEAN economies. In Indonesia, for example, President Jokowi’s is increasing infrastructure spending to boost the country’s economy. There are similar developments in the Philippines, where the government is investing to encourage tourism. The improved relationship between Philippines and China is helping the country to attract large numbers of Chinese visitors. Furthermore, travel across ASEAN is increasing as the middle class gains more bargaining power.
Indonesia Stands Out
Regarding GDP per capita, Lim believes that Indonesia is in a “sweet spot” within ASEAN and that the country’s demographic dividend is a tailwind. Indonesia is the largest country in the bloc with a relatively young population. “As the country’s middle class grows and becomes wealthier, people will be able to afford more goods and services typical of a relatively mature economy. This will provide favorable opportunities for companies that can cater to these emerging needs,” noted Lim.
Indonesia’s other advantages include a very proactive government that is aware of the inefficiencies which need to be addressed. Furthermore, Lim believes the telecom sector in Indonesia is mainly attractive because of its relatively favorable competitive dynamics. It is more consolidated than the neighboring countries, such as Singapore and Malaysia. Lim believes that telecoms are a good way to gain exposure to a growing middle class and rising data usage. The industry’s largest company, PT Telekom, is held by the Fund (as of 31 December 2016).
Exploring New Frontiers
Within the frontier markets, the Fund has exposure to Vietnam and Pakistan. Both countries have large populations but relatively low GDP per capita, so have a lot of potential for long-term growth, according to Lim.
However, the team is only attracted if they can find good companies which they believe can deliver strong earnings growth. The team made its first investment in Vietnam in 2009, in a dairy company that had a dominant industry position, strong balance sheet, and a reasonable valuation.
Their recent investment in Pakistan has exposure to selective well-run firms whose valuations are attractive across the whole of Asia. BM
過去一年，霸菱大東協基金憑藉卓越表現，榮獲《指標》年度基金大獎「零售基金 ─ 東協股票類別」。