SooHai Lim, Barings
Lim is the lead manager of the firm’s Asean Frontiers Fund, incepted in 2008. The product is benchmarked to the MSCI AC Asean Index, which is comprised of Indonesia, Malaysia, Singapore, Thailand and the Philippines. However, in 2009 the fund started building exposure to Vietnam and the weighting of today amounts to about $24m or roughly 6% of assets.
The portfolio allocates mainly to large-cap names in Vietnam. As an example, Lim cited one of the top ten holdings, the airport operator Airports Corporation of Vietnam, which is 2.3% of the portfolio.
The state-owned company operates 21 civil airports, which break down into eight international and 13 domestic. The growing tourist numbers should bring better revenue to the airport operators, mainly derived from collecting passenger tax. But Lim expects the airports in Vietnam will develop the retail segment inside each airport like other well-run airports, which will bring them additional revenue.
“Airports do not only make money from collecting tax but are making a lot of money from duty-free concessions. The retail part of the airport remains immature compared to countries in the region, so we estimate a better monetisation of the development outside of the core infrastructure.”
Lim kept adding to the Vietnam allocation over the past nine years due to the continuous stock re-rating opportunities, the government’s effort in privatising local companies and growing foreign investment.
“Privatisation and foreign investors tend to bring in expertise and should improve businesses to run more profitably.”
The rationale behind his bullish view also includes more potential relocations of manufacturers from China.
“The hardworking labour force has attracted more foreign direct investment to Vietnam. While production in China is becoming more expensive, we continue to see factories relocate to Vietnam,” he explained.
Additionally, he also bets on the benefits from ongoing economic transformation. “Around 15-20 years ago, the exports from the country were largely textile and agricultural products. Today, mobile phones and other electronic devices take up a big part of exports. The economy is transforming nicely and has high growth potential.”
For his Asean fund, Lim’s team adopts the firm’s bottom-up stock selection process by running a five-year valuation model for the stocks that fall into the investible universe. The analysis is neutral on whether a potential investment is a private company or state-controlled.
“State-owned enterprises in some countries can be dangerous in the sense that they are used by the authority as an extended policy arm for the government’s own use,” he said. If this is the case, his team may apply a discount to the stock price valuation when making an evaluation.
Year-to-date, Malaysian equities are the best performing among Asean markets, calculated based on their MSCI indices, data from FE Analytics shows.
However, Lim’s fund has an underweight Malaysian equities (8%) compared to the benchmark (21.5%) at the end of June.
“Typically, the portfolio has been positioned an underweight to Malaysia because of less investible companies at a right valuation based on our analysis.
“The allocation to Malaysia was reduced during the past four months as we felt that the change in government has resulted in uncertainty with regards to longer-term policy. The country’s economic growth may slow down due to a number of projects being put on hold by the new government.”
Lim said the fund cashed out some Malaysia investments and directed the proceeds into other markets, such as Indonesia, the fund’s biggest overweight (24.9% vs benchmark’s 17.56%).
The currency concerns over the Indonesian rupiah against US dollar have contributed to the year-to-date underperformance but also some buy-in opportunities as growth stocks came down to attractive valuations, he added.
The fund returned -6.5% year-to-date in US dollar terms. Over the trailing three years, the performance was 22.18% vs the benchmark’s 20.7%, according to FE data.