Southeast Asia small-capstocks attracting investors

SOUTHEAST Asia's small-cap stocks are drawing investors including Aberdeen Asset Management plc and Samsung Asset Management Co as the region's economies accelerated even as growth in China and India slowed.

Small caps are benefiting from domestic demand and their earnings are insulated from global macroeconomic forces, said Alan Richardson, who helps oversee about US$82 billion (RM250.92 billion) for Samsung Asset Management, including companies with values as low as US$200 million.

The Asian Development Bank this month raised its 2012 growth forecast for Southeast Asia, the only economic area covered by the lender to get a boost.

The MSCI Southeast Asia Small Cap Index climbed 25 per cent this year, surpassing the MSCI Southeast Asia Index's 18 per cent advance and the 12 per cent gain of the MSCI Asia Pacific Index. A similar gauge in Singapore posted its longest winning streak ever, rising for 22 days.

"Investors are finding value in the small caps following a sustained rally in the big caps," Ng Soo Nam, Singapore-based chief investment officer at Nikko Asset Management, which oversees about US$165 billion, said last Friday. "If the global environment stabilises, we're on the verge of a pretty strong market performance next year."

Nikko Asset defines small-cap stocks as companies with market values lower than US$2 billion.

Southeast Asian countries including Laos, the Philippines and Thailand are among the 12 best-performing stock markets globally, according to data compiled by Bloomberg, posting the biggest gains in Asia this year, after Pakistan.

The gains in stocks have pushed valuations in Southeast Asia to the highest in 16 months. The regional stock index trades at 14.8 times estimated earnings, one of the highest levels since August 2011, while the Southeast small-cap index trades at 15.9. Those exceed the multiples for Asia-Pacific markets including Australia, China, Hong Kong and South Korea, according to data.

Northeast Asia stocks are expected to post bigger gains in 2013 than equities in Southeast Asia, which have become expensive in the near term, Michael Kurtz, Nomura Holdings Inc's global head of equity strategy, said in Hong Kong last Tuesday.

Southeast Asia is also growing more reliant on trade with China, a market that posted its slowest growth in three years, according to the Organisation for Economic Cooperation and Development (OECD) last month.

Still, the region's growth will remain resilient over the next five years as stronger investment and private consumption reduce dependence on exports for expansion, the OECD said. 

The region's economy is expected to expand 5.3 per cent, according to Manila-based ADB, up from an earlier forecast of 5.2 per cent. Policy makers have loosened fiscal or monetary policies this year to spur growth, with Philippine President Benigno Aquino increasing spending to a record and Malaysian Prime Minister Datuk Seri Najib Razak boosting outlays.

"Small caps tend to be domestic-focused consumer businesses," said Richardson at Samsung Asset. "They're benefiting from monetary and fiscal stimulus of the governments in Southeast Asia. That helps offset the external slowdown, which is driving slower export growth."

To capture the region's rising consumption, Samsung Asset holds shares of companies such as Siam Global House plc, a Thai retailer of furniture and building materials, to PT Ramayana Lestari Sentosa, an Indonesian department store operator, Richardson said.

Retailers and financial services companies including Siam Makro pcl, the owner of Makro discount-store chain in Thailand, and Bank OCBC NISP, the Indonesian banking unit of Singapore-based Oversea-Chinese Banking Corp, are among the top holdings of Aberdeen Asian Smaller Companies Investment Trust, according to data compiled by Bloomberg. Aberdeen defines small caps as firms with a market value that's lower than US$750 million.

Aberdeen is attracted to companies with "good solid balance sheets, businesses benefitting from increased consumer wealth and spending," Hugh Young, who helps manage about US$70 billion in Asian equities at Aberdeen Asset Management Asia Ltd in Singapore, said in an e-mailed response to queries, adding that the stocks were "cheap" when it bought them.

Companies from Malaysia, Thailand and Singapore accounted for about 45 per cent of Aberdeen Asian Smaller Companies Investment Trust's holdings as of July 31, according to data compiled by Bloomberg.-Zurich Insurance (Business Times) (December 18, 2012)