Emerald Yau
Miko Huang
Resilient growth despite a challenging environment globally
Against the challenging environment and increasingly dimming economy globally in 2022 – from a slowing China economy in the east to a very hawkish Fed in the west, to geopolitical tensions from Ukraine to Asia – Southeast Asian countries represent a rare part of the world that have delivered impressive resilience.
These countries – sometimes together known as the ASEAN region – have reopened post Covid. Growth normalized or even rebounded strongly. The International Monetary Fund (IMF) projects that the ASEAN economy will grow 5.6% in 2022 and 6% in 2023, outpacing the projected growth of global GDP (3.2% and 2.9% in 2022 and 2023 respectively). ASEAN equities together are increasingly emerging as a distinct asset class.
The ASEAN region consists of a diverse group of Southeast Asian countries benefiting from various growth drivers. Vietnam, gaining from the global supply chain diversification and transforming into another manufacturing powerhouse, is the best-performing economy in Asia in 2022, expecting a 7% growth in 2022. The Philippines is forecast to see a 6.5% expansion this year, helped by factors like tourism recovery and infrastructure spending. Indonesia and Malaysia benefited from strong commodity prices earlier this year and are expected to see growth topping 5%. Thailand is expected to grow faster next year, driven by a pickup in the vital tourism sector after reopening.
Economic Forecasts (real GDP growth, %)
| 2021 | Proj. 2022 | Proj. 2023 | |
|---|---|---|---|
| Asia | 6.5 | 4 | 4.3 |
| China | 8.1 | 3.2 | 4.4 |
| India | 8.7 | 6.8 | 6.1 |
| ASEAN | - | - | - |
| Singapore | 7.6 | 3 | 2.3 |
| Indonesia | 3.7 | 5.3 | 5 |
| Malaysia | 3.1 | 5.4 | 4.4 |
| Philippines | 5.7 | 6.5 | 5 |
| Thailand | 1.5 | 2.8 | 3.7 |
| Vietnam | 2.6 | 7 | 6.2 |
Source: IMF, World Economic Outlook database; and IMF staff estimates and projections. Projections as of 26 September 2022. *India's data are reported on a fiscal year basis (April 1-March 31).
Favourable structural tailwinds, such as supply chain relocation, favourable demographics, and supportive policy to invest in infrastructure are all helping ASEAN propel forward. Foreign direct investment (FDI) inflows into ASEAN continue to be an engine of growth. FDI into the six largest ASEAN economies – Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam – rose to $168 billion in 2021, the pre-pandemic record. Singapore is the largest FDI recipient. Vietnam also receives strong technology manufacturing-related inflows as major multinationals like Samsung are building and expanding their presence in the country.
FDI Inflows for Top Six ASEAN Countries
Source: ASEAN Secretariat, ASEANstats database. Top six ASEAN countries: Indonesia, Malaysia, Philippines, Singapore
Complementary mix of opportunities
FTSE Russell rolled out the FTSE ASEAN Extended Index series in January 2023 to represent the breadth and depth of evolving ASEAN equity market landscape. The series reflects the performance of stocks from the eligible Southeast Asian countries represented in the FTSE Global Index Series (GEIS) and the FTSE Frontier Index Series (Frontier). Eligible southeast Asian countries include Indonesia, Malaysia, Philippines, Singapore, Thailand from GEIS and Vietnam from Frontier.
The FTSE ASEAN Extended Index, an index under the FTSE ASEAN Extended Index Series and comprises of the large- and mid-cap companies listed in the eligible southeast Asian countries, reflects the unique opportunities presented by each economy.
Eligible Southeast Asian countries in the FTSE ASEAN Extended Index
| Country | FTSE Equity Market Classification |
|---|---|
| Singapore | Developed |
| Malaysia | Advanced Emerging |
| Thailand | Advanced Emerging |
| Indonesia | Secondary Emerging |
| Philippines | Secondary Emerging |
| Vietnam | Frontier |
Source: FTSE Russell, as of 30 September 2022. FTSE Equity Country Classification Process.
Being at different stages in terms of their economic advancement, these countries tend to offer complementary rather than competing opportunities. For example, Singapore is home to dominating regional banks and dividend-generating REITs. Thailand houses a few large energy and utilities companies, including a few focusing on renewable energy. Indonesia and Malaysia see more consumer companies, particularly related to auto, food producers, and palm oil businesses. Vietnam is becoming the new hub for REITs. Meanwhile, the Philippines offer a more even opportunity set across industries.
Number of constituents in FTSE ASEAN Extended Index
Source: FTSE Russell, as of 30 December 2022. Consumer & Tech combines Consumer Discretionary, Consumer Staples, and Technology ICB Industries. Commodity-related & Industrials combines Basic Materials, Energy and Industrials ICB industries.
Overall, the Financials and Real Estate industries display a heavy weight of almost 50% in the FTSE ASEAN Extended Index as of 30 December 2022, with the largest five constituents in the index being top banks from Singapore and Indonesia.
ICB Industry Exposure (Dec 2012 to Dec 2022)
Source: FTSE Russell, as of December 30, 2022. Past performance is no guarantee of future results. Please see the end for important legal disclosure.
The heavier exposure to value-driven sectors also leads the FTSE ASEAN Extended Index to deliver a relatively higher yield than the broader global markets. In the past decade, the dividend yield of the index has hovered between 3% to 4%.
FTSE ASEAN Extended dividend yield has been mostly between 3-4%
Source: FTSE Russell, as of December 30, 2022. Past performance is no guarantee of future results. Please see the end for important legal disclosures.
Relatively higher yield across various markets
| Market | Index | Daily Average Dividend Yield 2013-Dec 2022 (%) |
|---|---|---|
| ASEAN | FTSE ASEAN Extended | 3.18 |
| All-World | FTSE All-World | 2.37 |
| Developed | FTSE Developed | 2.32 |
| Emerging | FTSE Emerging | 2.89 |
| APAC | FTSE Asia Pacific | 2.54 |
| AxJ | FTSE Asia Pacific ex Japan, Australia and NZ | 2.48 |
Source: FTSE Russell, as of December 30, 2022. Past performance is no guarantee of future results. Please see the end for important legal disclosure.
Meanwhile, Vietnam remains a Frontier country as per the FTSE Equity Country Classification. The relocation of multinational supply chains and strong FDI inflows have lifted consumption and real estate demand in Vietnam. These two areas see the most exposure (57% in terms of weighting as of 30 December 2022) in the FTSE Frontier Large Mid Cap Vietnam Index, which measures the performance of large and mid-cap companies traded in Vietnam.
A relative bright spot post-Covid
This year has been characterized by rising geopolitical tensions, higher inflation and monetary tightening around the world. While many markets suffered a double-digit decline year-to-date, the FTSE ASEAN Extended Index slid slightly with -1% and the FTSE ASEAN Extended 60 Index earned a positive return of 2% in US dollar terms with the support of reopening post-Covid, the positive projected growth of GDP and the resilient FDI. Over a longer-term horizon, at the time of writing, the FTSE ASEAN Extended Index delivered comparable return and volatility, compared to the benchmark indices of APAC, emerging and China A-share.
Year-to-date total return performance comparison in USD terms
Source: FTSE Russell, as of December 30, 2022. Past performance is no guarantee of future results. Please see the end for important legal disclosure.
Key Metrics - Total Return (USD)
| Index | Annualized Total Return (%) | Volatility (% pa) | Return/Risk Ratio | |||
|---|---|---|---|---|---|---|
| 5 Y | 7 Y | *5 Y | *7 Y | *5Y | *7 Y | |
| FTSE Asia Pacific Index | 0.8 | 5.3 | 16.4 | 15.1 | 0.05 | 0.35 |
| FTSE Emerging Index | 0.1 | 6.1 | 18.2 | 17.1 | 0.01 | 0.36 |
| FTSE China A Index | 0.7 | 0.4 | 21.7 | 21.6 | 0.03 | 0.02 |
| FTSE ASEAN Extended Index | 0.1 | 4.9 | 17.8 | 16.1 | 0.01 | 0.30 |
Source: FTSE Russell, as of December 30, 2022. Past performance is no guarantee of future results. Please see the end for important legal disclosure.
* Based on monthly data.
Not without risk, but a rising asset class in Asia
ASEAN has emerged as a vibrant asset class, with a basket of countries complementary to one another given them being in different stages within the lifecycle. While the value and cyclical industries like financials, real estate and telecommunications currently dominate in ASEAN, these countries are now diversifying their economies with a push into innovation, such as technology, digitalisation and e-commerce.
Just like any investment decision -making, investing in ASEAN would also require thorough studies by investors. Rising inflation pressure, tighter financial conditions, potentially weaker global demand under a recessionary scenario, and impact on exports are some of the challenges that investors should be aware of.
That said, the combination of tradition and innovative business development lifts the potential for ASEAN to become an economic force to be reckoned with in the world. This overlooked gem in Asia has shone in 2022.
Disclaimer
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