Indonesia, Malaysia, the Philippines and Thailand remain unpopular investment areas due to the probl...
Indonesia, Malaysia, the Philippines and Thailand remain unpopular investment areas due to the problems of political instability and corruption.
Alistair Thompson, investment manager at Edinburgh Fund Managers says: "There is a pretty poor outlook for Indonesia given that companies have not changed and there is still a very highly leveraged relationship between politics and business."
Gerald Smith, head of Asia-Pacific equities at Baillie Gifford, agrees: "Indonesia is a mess. With the separatist tendencies, there is a real risk the country will disintegrate. The main thing going for it recently, as an oil exporter, was the strong oil price but this has not lasted."
Smith expects Indonesia to remain volatile over the coming year. His main holding is in Unilever Indonesia.
"As Indonesia is statistically insignificant in most indices even though we are overweight, it does not mean we have much money there," he says.
Edinburgh Fund Managers has no holdings in Indonesia. Indonesian banks are in a particularly bad state, according to Thompson.
"Indonesian banks' record keeping is almost non-existent," he says. "There are a lot of non-performing loans (NPLs), which they do not know how to restructure. I doubt there is much loan demand in Indonesia, they are pretty risk averse. The management of the banks is horrendous, as can be seen from their lending practices. One of the ways out would be to get western management expertise in. It is falling into the same category as Pakistan."
Malaysia is more attractive than Indonesia, though it does suffer from political interference in the running of businesses, says Thompson. He notes that in the aftermath of the crisis, the Malaysian banking authorities did a good job of dealing with NPLs.
"For the last six months, funds have been defensively positioned in Malaysia," he says. "You can buy companies like BAT Malaysia that consistently outperforms."
However, he is frustrated by the slow pace of corporate restructuring and thinks that Malaysia remains a high risk market due to the authoritarian nature of the government.
According to Smith, Thailand's general election could prove to be a double edged sword. He says: "On the one hand the Government has been elected with a majority, so it could do things but there are problems with the leader facing a possible ban from public office because of corruption, so politics again dominates."
He believes that if the Government were to address the problems of NPLs in the banking system, the market could perform well. He notes that Siam Commercial Bank raised more money than others did when it was re-capitalised.
"The Philippines is politically the most interesting country of the lot," says Smith.
"President Estrada faces impeachment and the market reaction to that was to go up, if he was successfully impeached it would go up even more because more money would flow into the country and interest rates would go down. If he is not impeached the market will not like it."
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