Mohammed Zaidi (MZ): Hi, my name is Mohammad Zaidi and I'm the Director of Research for Asian and Emerging Markets here at Nikko AM (Asset Management). The ASEAN market has had an impressive year (year 2024), up nearly 12%*. Singapore has been the outstanding performer, up over 30%*, making it one of the best performing markets globally. But 2025 will be a tricky year for ASEAN. Under Trump 2.0., ASEAN is in the soft crosshairs of potential tariffs under President elect Trump, and governments will have to balance domestic growth and investment boom and employment.
*Source: Year-to-date data from Bloomberg and MSCI, as of 9 Dec 2024. Past performance is not indicative of future performance.
Central banks will have to find a balance between interest rates and currencies, while politicians will have to navigate the growing tensions between the US and China. The largest investor into the region in terms of FDI (Foreign Direct Investment) is China, and China is ASEAN's largest trading partner.
A key question on investors’ minds is about the Trump tariffs and what it means for inter-regional relationships. As you can see, we have a lot to unpack and to help us do so, we are joined today by Yeu Huan Lai, Joint Head of Asian and Emerging Markets Equities here at Nikko AM. Yeu Huan also manages the ASEAN portfolio and with 26 years of experience, investing in the region, is going to help us with his insights on how to navigate these turbulent times.
MZ: So Yeu Huan, is ASEAN a winner or loser with potentially higher tariffs?
Yeu Huan (YH): We think that ASEAN is potentially a winner in a world of higher US import tariffs. And the reason why we say that is because ASEAN isn't the primary targets of these higher tariffs, which are, of course, China, Mexico and Canada. Because of this, we think that any tariffs that will be imposed on ASEAN will be lower than those for these primary targets. So because ASEAN will have lower tariffs, it's still a more attractive destination for manufacturing and we think that that will continue to support the shift of global supply chains into ASEAN.
MZ: So that makes ASEAN relative winner in a world of higher tariffs?
YH: Yeah, that's true. I mean, we don't think that these tariffs will move large amounts of manufacturing back to the US. So manufacturers will still have to look for the lowest cost destination for manufacturing.
MZ: What kind of investment flows do you think these countries will be attracting in this world of relatively better tariff regime than, you know, others with lower tariffs attracts what kind of investments?
YH: Well, that would be quite broad. The ASEAN region will benefit both from manufacturing shifts in the tech sectors as well as non-tech. So there'll be a large amount of activity that will need to find the lowest cost locations for manufacturers in order to make them cost competitive.
MZ: Okay, great. So, I mean, are we thinking about cars or are we thinking about shoes? And just trying to get something for our audience to think about is what can this see made in ASEAN and compared to Made in China?
YH: Well, this would range from things like your mobile phones which are being assembled in Vietnam to cars which will be assembled in Thailand to all the way to semiconductor components which are being assembled as well as tested in Malaysia.
MZ: So which countries should we be keeping an eye on with that in mind?
YH: In the last few years, the beneficiaries have mainly been Vietnam and Malaysia. We think that these two will continue to gain. Between the two, we are more positive on Malaysia. There is already a well-established ecosystem in the semiconductor supply chain and we think that that will be an area which will continue to receive shifts in supply chains.
MZ: So with that in mind on Malaysia, it sounds like Malaysia is quite the exciting or the new emergent destination for investment, for export. What areas in Malaysia are you guys looking at in your portfolios?
YH: Apart from in the tech and semiconductor space. We are also positive on the data centre space in Malaysia. In recent years, Malaysia has become a prime location for the development of new data centres and that's because Singapore has had a moratorium on new data centres since 2019. There just isn't enough power in Singapore and Malaysia with sufficient power, land as well as good data connectivity. That's a natural location for the location of these data centres.
MZ: Interesting. And when you say data centres, these are catering to global companies or US companies or Chinese companies, who's coming into to be hosted in these data centres?
YH: The short answer is all of the above. We see both global companies as well as Chinese companies locating in Malaysia. And part of the reason is because data needs to be located close to where it is being utilised. And Chinese companies, of course, need a place outside of China to locate some of the data as well.
MZ: So that makes Malaysia a really exciting place or indeed an emerging ASEAN country, so to speak, because it hasn't had played that role in a while. But let's now talk about Indonesia. At 280 million, the country has the largest population in ASEAN, and it's got a young population. It has an attractive growth outlook. It's attracting lots of inflows in terms of capital investments. And because of its strong minerals base, it has positioned itself as an emerging supplier of EV (electric vehicle) battery materials. So what are your thoughts on Indonesia and growth there and how it impacts the equity markets?
YH: We are also positive on Indonesia in 2025. We think that the policies under President Prabowo will be supportive of growth. And one of the examples is how he's supporting consumption in the low-income population. In another example, I think that he will continue with the policies of encouraging downstream activity within EV battery materials where there is of course a lot more value added and it's a lot more beneficial to the country compared to just mining the minerals.
MZ: So I mean, to me that sounds like a mix of industrial tech, consumption and banking. So I mean, within those. Which areas are you focused on in your portfolios?
YH: In different countries, we will have a slightly different focus in Indonesia. It will be a focus on these new age materials as well as consumption. In Malaysia, you'll be a lot more on the tech supply chain as well as property and construction.
MZ: So wrapping up, what can we expect in the first three months of 2025? I mean, we haven't even gotten to the Trump presidency yet and we're already hearing about 25% tariffs, 10% tariffs, Canada, Mexico, China. I mean, it all seems very unpredictable. So how are you positioning for this for just at the beginning of the year?
YH: Well, we think that ASEAN will be a relative winner in the world of higher tariffs. But of course, there's still a lot of uncertainty on how these tariffs will be actually implemented and we have to remain nimble in our portfolios and react to the actual implementation of the tariffs.
In addition, we are also looking out for lower interest rates. We think that interest rates will be lowered by the US Fed in the first half of 2025 and this will be beneficial for ASEAN countries as well. But we think that lower interest rates will go some way in reducing the volatility that will come about from the trade policies that will be implemented by the US.
MZ: There we have it, thank you very much for your time, Yeu Huan.
YH: Thank you.
