May 1997

Investing in South-East Asia

Introduction

After more than a decade of double digit growth figures, the economies of South-East Asia are showing a slow down. Where you could nearly invest randomly in every company a decade ago, things get more difficult now. There are only a few companies left on each market which continue to promise a respectable growth figure on the short-term future

In this report we will look into the possibilities of the following countries; Thailand, Malaysia, Singapore, Hong Kong and Indonesia.

Thailand

The Thai economy is in a bad shape, the local currency is devalued, the solvency is downgraded, the infra-structure is collapsing under heavy traffic, the industry is experiencing over capacity and the financial markets experience a near collapse because of bad loans and of a bad internal organisation.

Thai stocks are also this year not on our list as an investment opportunity. But in two or three years the situation will probably be improved considered the financial resources available to the Thai government and if the problems with the infra-structure, industrial organisation and pollution can be solved.

Malaysia

The Malaysian economy is showing a better performance, they have not yet reached the development level of the other “tiger” countries, like Singapore, Taiwan and Korea, and therefore possess still some nice opportunities.

The reasons behind the growth possibilities are the natural resources available to Malaysia, the space in legislation, the rising internal demand, the government supported projects which have just started or are near to implementation and finally the cost of labour in relation to their skills.

There are also a number of stocks which are looking very profitable. The sectors interesting to invest into are finance, oil, property and technology related. In the financial sector for example Public Bank and Malayan Bank, in the oil sector Petronas Gas, in the property sector Shah Alam Properties and Sime UEP Properties and in technology/engineering Telekom Malaysia and Utd Engineers.

Singapore

The economy of Singapore is one of the most developed in the region. It is still a good place to establish the regional headquarters to serve the South-East Asian market. But because of the high prices of real estate and labor it is only usefull for management, R&D and high tech production.

The profitability of the Singaporean stock market is not going to show the growth of the preceding decade. The Singapore stock market is to expensive and the industry can not gain growth anymore just by increasing the input of labor and money. Instead it has to infuse technology and lean organisation to induce growth and this is much more difficult to realise.

The stocks which will probably survive the downturn best are the Development Bank for Singapore and Singapore Airlines. But this is no guarantee, to many large investors are slowly reducing their holdings into the Singaporean stock market, and this will in the end hurt all stocks very badly. To enter the stock market again will be profitable if the market has lost a least 15 % in value.

Hong Kong

The financial and trade center of Asia is awaiting the reunion with China, this is a possible inducement to further growth or, which is rather unlikely, the collapse of a prosperous economy. Hong Kong is possibly the most promising market of Asia. The financial and trade skills of Hong Kong combined with the availability of cheap labor and the immense market in China is giving the Hong Kong stocks a chance to realise double digits growth figures.

            With limited risk it seems a good idea to invest in some of the most promising stocks at the Hang Seng. Especially the financial sector and large conglomerates seem to offer the best growth chances. We expect for example in the near future a lot of Hang Seng Bank and HSBC in the financial sector. Other prospects are Hutchinson Whampoa, New World Development, Shangri-La Asia, Shun Tak Holdings, Sino Land and possibly Swire Pacific.

Indonesia

The economic development of Indonesia is showing some very good numbers in the previous decade. It has become an attractive place to invest some of your funds. But as usually there is a big “but”. Beside of the economic achievement there are large problems between the ruling regime and the opposition party, with the different ethno-religious groups in the country, the independent movements in several parts of the island rich country, the lacking infra-structure, the unequal distribution of wealth and the accumulation of financial and political power around the president and his family.

Indonesia is as said before a country with a lot of opportunities, it has a lot of natural resources, a large potential market, a relatively skilled workforce and an innovative industrial sector which is continiously improving and expanding itself.

The stock market in Jakarta is therefore an image of the situation of the country. On one side it is a booming and very promising market but on the other side the internal problems and the lack of infra-structure outside the island of Java is going to impede the growth of the market and it will probably destroy the gains which are realised before when there is an outburst of religious or political violence.

If you are willing to take a risk the best investment opportunities are given by the exploitation of the natural resources, the food/basic industry companies and the conglomerates.

Conclusion

            There also still a number of options left to invest, Hong Kong and Kuala Lumpur are offering the best possibilities. The economy of both is in very good shape and even more important there are a lot of possibilities in the future.

The most risky are the stocks in Jakarta, the economy is growing and the stocks seem to offer a profit over the next years. But this can be very easily destroyed because of internal unrest or to little investments in the infra-structure which is an imperative to growth.

The worst options are offered by Singapore and Bangkok. Singapore because of the expensive market and lesser economic growth. And Bangkok because of a slow down of the economy, organisational problems and bad loans in the finance sector and a nearly collapsing infra-structure.