Asian Economy 20/06/2013

Ong Seng Yeow
Research Director,
Maybank Kim Eng, SG

Key Takeaways
Asis ex-Japan Fund out flows: USD1.8bn
Risk to emerging market growth should be contained with US recovery

Q1. Equity fund flows are exiting emerging markets, to the tune of USD6.2bn in week ended 5th Jne. Where are they going to?

•Global fund flows continue to exit the equities market: outflows nearly doubled of what we saw end May
•Asia ex-Japan: fund outflows spiked to about USD1.8bn
•Main outflow contributors: China and Hong Kong –USD1.2bn, just under 70% of total outflows within Asia ex-Japan itself
•Clearly not going to bond markets, but outflow is going to cash –cash ratio has been rising indicating investors are taking risks off the table

Q2. With China growth somewhat suspect, which other growth drivers are we depending on to power this region ahead?

•Emerging markets in general are suffering from the outflow
•With US recovery: risk to emerging markets growth should be contained
•Fed’s statement also removed ambiguity
•Forecast for US GDP growth 2.5%-2.8% and unemployment targets of 7.3%-7.5%: clearly achievable
•Beneficial to economies like Taiwan and South Korea, whose core electronic industries are directly leveraged to US economy

Q3. In April -institutional investors raised allocation on Singapore and Malaysia against under-allocation from Korea and Hong Kong. Would that be a continuing trend this month?

•Singapore market yield spreads against 10 year SGD bond rate is still below historical average
•Still some downside risk for Singapore market in general
•More optimistic for Malaysia: 2013 year end KLCI target based on 15.5 times forward earnings, slightly above KLCI’s mean average of 14.8 times
•Economy in general is supported by solid domestic fundamentals
•Stable macroeconomic conditions, strong banking systems, healthy corporate balance sheets, and continuous corporate earnings growth
•Despite market gaining 4.2% in just 1 month

Q4.  What would you suggest risk-adverse investors do?

•Avoid some Asian markets that have outperformed the region
•Indonesia, Philippines, Thailand: economic fundamentals have been strong
•Hot money flows were large contributing factor for the supernormal gains in the stock markets for these countries
•Only wise as funds rebalance portfolio and take risk off the table: put less weightageto these countries

Disclaimer: No information should be concluded as buy or sell, please consult your personal remisier for your personal investment decision.