Page 20 - FOGlet 4

Active management

brings rewards in

ASEAN

By Jeremy King

hy do ASEAN stock markets floats may be smaller than they should be.
tend to underperform their In fact, the bulk of economic activity in
underlying economies? In ASEAN is carried out in the agriculture
Wthe 10 years from 2008- sector and by SMEs and partially foreign
2017, economies of the 10-member owned joint ventures that are rarely listed,
countries of “The Association of South East but have a substantial impact on domestic
Asian Nations” have averaged GDP growth banking and consumption. Key industries
of 5.1 per cent a year but their stock such as tourism in Thailand are
markets increased just 4.6 per cent a year. represented only by the Airport Authority,
The answer is not straightforward, since some airlines and a handful of hotel
much depends on the time period that you companies, while in Singapore property
select, because severe volatility has hit the companies are over-represented. Corporate
region from time to time. governance also varies from country to
Firstly, we should differentiate between country, in some cases stymieing
corporate earnings growth and share price entrepreneurialism and in others providing
performance. Listed company earnings well-needed regulation.
have grown nine per cent per annum for the Thirdly, the cyclicality of ASEAN in the
last 10 years, easily outpacing the past has meant that your returns would be
underlying five per cent GDP growth. The massively skewed by the timing of your
fact that equity indices have only gained 57 entry. The 1996-98 Asian crisis and the
per cent in the same period is an indication 2008 global financial crisis amounted to
of fluctuating valuations on the back of major value resets. In the future such
global capital flows, local liquidity, impact extreme turbulence may not recur since
of foreign exchange rates on these export- government balance sheets are much
driven economies and investor sentiment. stronger than ever before. Average
Corporate earnings may themselves swing government debt to GDP in Asean is 40 per
widely depending on the corporate cent versus 87 per cent in the UK and 108
discipline, leakage and accounting within per cent in the US. In addition, foreign
particular companies. exchange reserves in Asean are over US$
Secondly, some ASEAN stock markets, 1 trillion or one-third of total regional GDP
such as the Philippines (although founded versus China at US$3 trillion or 25 per cent
in 1927) are still not broadly representative of GDP. Similarly, total Asean debt
of their economies and their actual free- (combined government and private) stands

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