The Southeast Asian region encompasses some of the fastest growing frontier Asian economies, enjoying growth rates once only associated with China and longed for by India. Indeed, China’s success is now spilling over into these economies in the form of manufacturing migration and favourable demographics similar to India makes the Southeast Asia region ripe for growth.
The reinstatement of lockdowns in late 2020 will inevitably cause disruption to the growth trajectory in the very short term. However, this is likely to only be a blip in the longer-term expansion trend and heightened volatility could provide investors an entry to the sector.
The allocation of capital to Southeast Asian must be paid careful consideration as many products covering Southeast Asia have a large exposure to China and South Korea, which do not have same market dynamics as countries such as Vietnam, Thailand, Cambodia and Indonesia.
Barings ASEAN Frontier Fund
This fundamental bottom-up fund is one of the largest funds in this asset class with a NAV of some $352m.
The focus is on frontier Asian economies where they see favourable demographics such as Singapore, Thailand, the Philippines and Malaysia.
Barings ASEAN Frontier’s largest holding is Singapore-based Sea Limited accounting for 8.8% of the fund. Sea Limited provides technology services across digital payments, gaming and e-commerce, and represents the wider adoption of technology in the region.
In the quarter to 30thSeptember, Sea Limited recorded a bumper 97% increase in revenue to $1.2bn, up from $610m a year prior.
The portfolio has a significant exposure to financials with 28% of the fund invested in the sector. The financial sector will act as a facilitator of growth in the region as well as being a major beneficiary as frontier economies expand.
As the fund notes in its prospectus, the portfolio is set to benefit from a shift in manufacturing from China to the rest of Asia and the associated benefits in consumer spending.
According to the World Bank, the Vietnamese economy is predicted to grow 6.8% in 2021, having grown 3% in 2020.
In addition to the expansion in GDP, Vietnam’s trade surplus is expanding driven by the increased manufacturing activity and exports that grew 7% in 2020.
This is bolstering the spending power of the Vietnamese consumer making the country an increasingly attractive destination for FDI.
Indeed, there have been numerous media reports suggesting Vietnam is beating India in the race to be Asia’s second major manufacturing hub behind China.
The strength of the Vietnamese economy makes London-listed Investment Trust Vietnam Holding (LON:VNH) an attractive option to capture growth in South East Asia.
The trust, managed by Dynam Capital, focuses on high-growth Vietnamese companies well placed to benefit from Vietnam’s, and the entire Southeast Asian region’s, growth story.
Top holdings include Vietnam’s second largest bank by assets, Vietinbank, and leading industrial manufacturing Hoa Phat Group.
The impact of economic expansion is evident in these companies’ results after Vietinbank reported a 40% increase in profit before tax and Hoa Phat’s steel sales volume grew 22% year-on-year.
In addition to the healthy growth prospects of portfolio companies and Vietnam’s economy, Vietnam Holding trades at a 19% discount to NAV.