ASEAN Strategy:US election takes some shine off

Event.

The US election result reinforces a de-globalization trend that our strategistViktor Shvets has repeatedly highlighted. With trade deals like TPP at risk ofbeing shelved we see this as incrementally negative for trade-dependentASEAN, especially Singapore and Malaysia. We see some silver linings forIndonesia on commodities demand as governments revert to domestic driverslike infrastructure, but the Philippines is still our preferred ASEAN market.

Impact.

Post US election, from a domestic country strategy perspective we are:T Incrementally negative on Singapore, which is the most trade exposedeconomy within ASEAN. Straits Times earnings are ~90% correlated toSingapore’s main trade index, NODX, and consensus’ expected growthrebound to 4.5% in 2017 (vs. -8.8% in 2016) now looks more difficult toachieve. We prefer diversified, recurring income stories less exposed totrade dynamics like CapitaLand, SingTel, Jardine Strategic, and SGX.

T Incrementally negative on Malaysia which had been flagged as thesecond biggest beneficiary of TPP after Vietnam by the World Bank.

Sectors at incremental risk include MNC supply chain and manufacturingexporters, the latter including electricals/electronics (E&E), furniture,gloves and condoms. A potential silver lining is added urgency for growthsupportivedomestic reforms, especially relating to GLCs which dominatekey economic sectors. Top GLC restructuring picks are Tenaga, SimeDarby and MRCB. More defensive picks are Public Bank and IHH.

T Incrementally positive on Indonesia, which is least trade dependent inASEAN. Moreover, according to our economists, we could see domesticstimulus in countries like China in response to any dampening of trade,which would support the commodity complex to which Indonesia’seconomy is highly correlated. Our top picks in Indonesia are XL Axiata,PT Telkom, Bank Danamon, Mitra Adiperkasa and Surya Citra Media.

T Thailand unchanged. We are looking for a modest upturn in Thailand’sexternal trade in 2017 in response to our global macro team’s call foracceleration in global industrial production and GDP growth. While amore protectionist US could be a dampener on this outlook, Thailand hasnot been involved in the TPP negotiations and has a broad suite ofbilateral free trade agreements. Our top large-cap picks are largelyindependent of export performance: ADVANC, SCB, and PTT.

T Philippines is better insulated from potential US election fallout both alow level of trade as a % of GDP as well as a low share of exports to US(it is not part of TPP either). The outsourcing sector could face someincremental headwinds, but we maintain our positive view on the market,with our top picks geared to domestic growth stories, including banksMBT and BDO, consumer giant URC, property firm ALI, and GTCAP.

Outlook.

Viktor’s country allocation model is overweight Philippines, neutral onMalaysia, and underweight Singapore, Thailand and Indonesia, in that order.