KUALA LUMPUR (April 9): The balance sheets of Asean economies, including Malaysia, appeared to have held up “very well” in withstanding pressures from the US liquidity tightening process over the past two years, a portfolio manager said on Tuesday.

Eastspring Investments Asia equities portfolio manager Sundeep Bihani said that when the expected interest rate cut by the US Federal Reserve (Fed) takes place, the Asean economies are set to “shine” given their resilient balance sheets and attractive valuations.

"Whether it is the second half of this year or next year, I don't know, because that is dependent on several issues going on in the US. Whenever this happens, the Asean economies should shine because the world will start looking at these economies," Bihani said at a media briefing.

"The US by then will start to see a little fading away of interest.

“This year, opportunities are still there in Asean, but we think that the opportunity set will expand as we go into next year,” he added.

Bihani said that historically, due to the region’s scarce capital and current account deficits, Asean economies tend to perform poorly whenever the US Fed raises interest rates to calm the world's largest economy.

“This time, there is magic," he said, noting that there has been no financial crisis during the last two years of US interest rate hike.

"In fact, Asean economies' balance sheets have held up very well in the last two years.

“This year, I think Asean would still feel the pressure of the lagged effect of the liquidity tightening happening in the US and with the US dollar being so strong and interest rates high. But as these US rates start to fall, Asean should benefit in a significant way,” he added.

'China's market appears to have bottomed'

Also speaking at the media briefing was Eastspring Investment's head of equities for China Michelle Qi, who said the Chinese market appears to have bottomed with some signs of recovery showing up.

“Definitely we have seen the bottom, especially after the liquidity sell-off at the end of January. And even now, if we are looking at the valuation of China equities relative to emerging markets, the discount is nearly at an all-time low,” she said.

“Looking at the economy, I think the only thing people still worry about is the property sector. I just saw the April new home sales numbers [and they are] still very slow. But on the other hand, I think if you are looking at the recent industrial numbers, it looks like structural change is happening,” she added.

Qi said the Chinese economy appears to gradually change from property investment-driven towards a more manufacturing sector-driven one “thanks to the strong global economy that enabled Chinese manufacturers to export globally and to benefit from this global recovery”.

Qi also noted nascent signs of consumption recovery, as saving rates for Chinese households grew at a slower pace recently.

“Chinese households continue to save. I think that is probably because the job security was not there. China is one of the countries that during the Covid-19 [pandemic], households received no cash subsidies at all, so households have been sitting on [their] savings.

“But I think recently, if you are looking at the savings numbers, it is still growing. But the growth rate has come down dramatically for the first time since last year,” she said.

“Also, we have seen positive signs of industry consolidation, [which] has reached a point that excess capacity started to come off. We actually see market leaders stop pricing wars and margins start to improve. So, from a micro-fundamental bottomed-up point of view, we actually see signs of recovery here and there,” she added.