Investment: These 5 markets that could benefit from the Chinese awakening

We will therefore look at the markets of the main emerging countries in the region: Indonesia, Malaysia, the Philippines, Thailand, Vietnam. Using the MSCI typology, only Malaysia, the Philippines and Thailand were included in the MSCI index. Emerging Markets at the time of its inception in 1988. Indonesia joined the index the following year. Vietnam is one of the Frontier Markets.

Between them, they represent a population of around 600 million inhabitants in 2023. This region, more maritime than continental, is positioned at the crossroads of international trade. The countries benefit from attractive tax policies and competitive labor costs, lower than those of China. This attracts large companies looking to minimize their expenses. Thus, the five countries have had an annualized average GDP growth of 4.84% since 2000.

Source: International Monetary Fund

Today, these countries are seen as the big winners in the political-economic rivalry between China and the United States. Southeast Asia could benefit from a dynamic similar to that which saw the four Asian dragons (Taiwan, South Korea, Hong Kong and Singapore) develop in the 1970s-1980s thanks to American and Japanese relocations. They could therefore do well in this dynamic region.

Be careful though, it should be noted that countries with the highest GDP growth rates tend to have the highest stock market returns the lowest. This situation can be explained by several factors. On the one hand, excessively optimistic market expectations may collide with a less attractive economic reality, leading to disappointment on the part of investors. On the other hand, economic growth can sometimes be achieved through companies relocating to the country which does not benefit local stock markets. Finally, a deliberately weakened currency may well stimulate exports and therefore GDP growth, but it can also significantly reduce the value of returns when converted into dollars, which penalizes international investors.

Indonesia

• Population : 273 millions
• Average annual growth since 2010: 4.74%/year
• Capital: Jakarta
• Main market capitalizations: banks, industrial conglomerates
• Characteristics: dominant position in the nickel sector, 1st world exporter

Amundi’s ETF tracks the MSCI Indonesia Net Total Return which tracks the performance of large and mid-caps in the Indonesian market. The tracker, covering 85% of the country’s stock market, which represents more than $135 billion, has increased by 3.98% since January 1. The sectoral distribution of the index is strongly concentrated around financials at 60%, followed by materials at 11.17%. The main position of the index is occupied by the commercial bank PT Bank Central Asia Tbk, which accounts for more than 27% of the index.

Adaro Energy is a multi-purpose conglomerate that primarily operates in the energy and mining sector, including operating coal mines. Additionally, the company offers a wide range of related services to the mining industry, including trading, transportation, logistics, port management and cargo handling. It also extends to areas such as agriculture, construction, maintenance and installation of machinery, energy supply, water treatment, forestry and industry. Its stock price has increased 64% since January 1.

Some figures:

• EBITDA 2023 : 2,1 Mds$
• ROE 2023 : 26,62%
• PER : 6,11x
• Capitalisation : 7,81 Mds$

Malaysia

• Population : 34 millions
• Average annual growth since 2010: 4.54%/year
• Capital: Kuala Lumpur
• Main market capitalizations: banks, utilities
• Characteristic: the island of Penang is shared between tourism and industrial zones. Intel, AMD and Hitachi established assembly plants in 1972. Malaysia holds 7% of the global semiconductor market, ranking 9th globally.

The iShares tracker tracks the MSCI Malaysia Index which measures the performance of large and mid-cap companies in the Malaysian market. The index, covering 85% of the country’s stock market for a capitalization of $118 billion, has increased by 24.20% since January 1. Thus the sectoral distribution of the index is strongly concentrated around financials at 43%, followed by public services at 14%. Thus, the main position of the index is the Public Bank which weighs 13% of the index for a capitalization of 19 billion euros.

Malaysia Airports Holdings Berhad is an investment company that manages airport operations in Malaysia and internationally. The Malaysian segment includes airport services, agriculture, horticulture, hospitality and maintenance. Abroad, it focuses on airport maintenance and services. The company operates a total of 39 airports in Malaysia, including five international airports, and one international airport in Istanbul. It also engages in agriculture, with the cultivation of oil palms, manages the Sama-Sama Hotel and associated express services in the terminals of KLIA Airport, and provides facilities management services and technical maintenance.

Some figures:

• EBITDA 2023 : 470M $
• Net margin 2023: 11.05%
• This net / EBITDA : 0.64
• FOR : 22.6x
• Capitalisation : 4,18 Mds$

Philippines

• Population : 112 millions
• Average annual growth since 2010: 5.24%/year
• Capital: Manila
• Main market capitalizations: industry, financial, and real estate
• Characteristics: notable development in telecommunications, BPO, finance. The booming sectors are fintech, e-commerce, and health services because they are driven by tech-savvy youth.

The ETF faithfully tracks the MSCI Philippines IMI 25/50, encompassing almost the entire free float market capitalization of the Philippines, valued at $54 billion. Since the start of the year, this index has recorded an increase of 13.04%. It has a marked sectoral concentration, dominated by industry at 32%, followed by the financial sector which represents 28%, and real estate with 21%. Its three main positions are: International Container Terminal Services (16%) a port operator; BDO Unibank (14%) a bank; SM Prime Holdings (12%) is a real estate developer.

International Container Terminal Services, based in the Philippines, is an independent container terminal operator with global port concessions. Its activities, focused on cargo handling and associated services, are divided into three regions: Asia (including Manila, Indonesia and China), EMEA (with operations in Poland, Georgia, Croatia, Madagascar, Pakistan, Cameroon, Iraq, etc.), and Americas (covering Brazil, Ecuador, Argentina, Mexico, Colombia and Honduras). The company operates 32 port terminals in 19 countries.

Some figures:

• EBITDA 2023 : 1,5 Mds$
• Net margin 2023: 21.42%
• This net / EBITDA : 2.08
• PER : 19,3x
• Capitalisation : 14,61 Mds$

Thailand

• Population : 66 millions
• Average annual growth since 2010: 2.57%/year
• Capital: Bangkok
• Main market capitalizations: energy, consumer staples, communication services
• Characteristics: manufacturing/tourism attracts FDI, leading producer of natural rubber, major producer/exporter of rice

The tracker reproduces the MSCI Thailand Index which covers approximately 85% of the universe of Thai stocks, valued at $114 billion. The main market capitalizations are concentrated in the energy, consumer staples and communication services sectors. Thus, its first three positions are: CP All (9%) in mass distribution; PTT (8.6%) the national oil giant; Delta Electronics (8.5%) manufacturer of electronic equipment.

CP All Public Company Limited is a company that operates a diversity of business operations, including the 7-Eleven convenience store franchise, in addition to multiple shopping centers. It also offers franchising, bill payment, banking services, and produces and sells ready-to-eat foods. In addition to retail equipment, CP All is diversifying into food production, financial services, education, information, marketing and logistics.

Some figures:

• EBITDA 2023 : 2,3 Mds$
• ROE 2023 : 17,46%
• This net / EBITDA : 4.62
• PER : 25.2x
• Capitalisation : 17,78 Mds$

Vietnam

• Population : 98 millions
• Average annual growth since 2010: 6.03%/year
• Capital: Hanoi
• Main market capitalizations: Real estate, financials, consumer staples
• Characteristics: very important agricultural sector, third largest oil producer in Southeast Asia, very important manufacturing and especially textile sector

The investment objective of the fund is to track the performance of the FTSE Vietnam Index, itself designed to reflect the performance of shares of Vietnamese companies listed on the Ho Chi Minh Stock Exchange. The tracker has seen its price drop by 3.36% since the start of the year. Its main position is Hoa Phat Group (15%) a steel giant.

FPT is a conglomerate operating mainly in three areas: technology, telecommunications, and education. In the technological field, the group offers digital services for various sectors ranging from finance to energy, including health, while producing software, microcircuits and marketing electronic equipment. In telecommunications, the company provides Internet access, streaming services through FPT Play, online publications and advertising. Finally, in education, the company operates a range of educational institutions, from primary schools to universities, including online professional training programs.

Some figures:

• EBITDA 2023 : 450,6 M$
• ROE 2023 : 28,17%
• PER : 26x
• Capitalisation : 8,11 Mds$

Global index: Global X Southeast Asia ETF (ASEA)

The ASEA ETF is provided by Global Thailand. As a result, Vietnam is not included in the index to the detriment of Singapore which is a developed country. The ETF is +15.24% since January 1st. Largely exposed to the financial sector (60%), its top five positions are banks.

Ultimately, despite an apparent boost in local financial markets driven by recent developments in China, the major indices have shown modest performance in recent years. That said, it is important to recognize that, despite this complex macroeconomic context, certain companies in the region demonstrate considerable potential. These gems play on the strengths of each country and can constitute more long-term opportunities for investors.