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This article first appeared in Personal Wealth, The Edge Malaysia Weekly on April 3, 2017 - April 9, 2017

AFTER years of being in the doldrums, out-of-favour emerging markets are making a comeback, and Malaysian equities are back on foreign investors’ radar screens.

According to Aberdeen Asset Management PLC co-founder and CEO Martin Gilbert, the international fund house plans to increase its exposure to Malaysian equities as it expects more foreign funds to flow into the country.

“Emerging markets peaked in March 2013 and since then, investors have been taking money out of them. They have been out of fashion for the past four years,” he tells The Edge after a recent Alice Smith Chamber brunch.

“It’s only now that investors are putting their money back into the emerging markets. Once they come back into fashion, there’s no reason why we shouldn’t see foreign funds coming back to Malaysia.”

While some quarters believe that the stronger greenback might encourage American corporations to repatriate funds to the US, hence affecting the liquidity of financial markets in Asia, Gilbert begs to differ.

“No, I actually think the reverse is true. If the US dollar strengthens, the Americans are going to invest more here (in emerging markets), so I don’t see any issue and concern about that,” he says.

Aberdeen Asset Management, led by Gilbert since 1983, is a global independent asset manager with a presence in 26 countries. As at Sept 30, 2016, its total assets under management in Asia stood at US$79.1 billion.

It is worth noting that Aberdeen Asset Management and Edinburgh-based Standard Life PLC recently announced an all-share merger deal, in a move to create one of the UK’s largest fund managers, overseeing assets worth £660 billion.

In Malaysia, Aberdeen Asset Management’s investments amount to about US$3 billion (RM13.32 billion). Interestingly, Gilbert was born in Malaysia and received his early education at the Alice Smith School in Kuala Lumpur between 1961 and 1965. He is also the deputy chairman of British broadcasting company Sky plc.

Dividing his time between Aberdeen, where the business has always been headquartered, and London, as well as overseeing the international operations of the group, Gilbert acknowledges that he is not very familiar with the Malaysian stock market. But out of interest, he keeps track of the companies that Aberdeen Asset Management has invested in here. The Scottish fund house and its subsidiaries have an 11.7% stake in United Plantations Bhd and 1.73% in Public Bank Bhd.

“We are bottom-up stock pickers, and we see value in the Malaysian market in terms of well-managed companies. It’s a good market; we like it,” Gilbert says.

He goes on to say that Malaysia, as a developing emerging market, has all the essential components — commodities, land, water and a well-educated workforce — to be a healthy growth economy.

“It’s just unbelievable what the country has achieved in the last 20 years,” says Gilbert.

Pointing out that the Malaysian equity market has been through some hard times in the last three years and that the ringgit is now “tremendously undervalued”, Aberdeen Asset Management Sdn Bhd managing director Daniel Choong believes foreign investors might start looking at this part of the world again.

“We are long-term investors. We like volatility but we don’t trade as much compared with our peers. The thing about the Malaysian stock market is that it is well supported by key institutional investors, so we are not seeing as much volatility as we want,” he explains.

Besides, Malaysian equities are expensive from the stock valuation perspective as the benchmark FBM KLCI is trading at a price-earnings ratio of about 16 times. But then again, remarks Gilbert, markets everywhere are expensive.

“The US is very expensive, so relatively, emerging markets still look pretty attractive. In fact, India is expensive and that’s where we invested the most in terms of emerging markets. All stock markets are a bit high at the moment ...  we would love it if they were a bit cheaper. Please don’t take this the wrong way but we actually quite like it when the market is tough because that’s when we perform the best.”

From a macro perspective, Gilbert is now more confident about the global economy than he has been for the last six to seven years, and he is also more optimistic about emerging markets than he has been for the past four to five years.

“The potential risks would be the uncertainty ahead of elections in Europe as well as the American economy not growing as fast [as expected]. Apart from that, I’m feeling reasonably optimistic about the world economic growth,” he says, adding half in jest, “Come to think of it, that’s actually a very dangerous [statement]. I can’t believe I’m feeling so optimistic.”

On a serious note, Gilbert says Aberdeen Asset Management favours tobacco companies, breweries and banks across emerging markets. “We basically like anything that reflects growth in the economy. We also like companies that have got good management. More importantly, we need to be able to analyse and understand their business.”

Gilbert also believes fears of Brexit and the Trump presidency have been overblown. “I think fear of geopolitical events in Europe is overdone. I don’t think Brexit will be as bad as people think. For one, fear of Trump is definitely overdone, there’s no question.”

However, he says, he likes fear. This is because fear makes investors cautious, which he thinks is a good thing.

“Stock markets tend to do well when people are cautiously optimistic. What we don’t want is a situation where everyone is euphoric about the stock market going up because that’s exactly when the crashes happen.”

Gilbert opines that Trump is good for the global stock market as he will fuel growth in the US economy.

“As the saying goes, when America sneezes, the rest of the world catches a cold. So the opposite is also true. If America grows, the rest of the world will boom. Trump is going to spend. He will borrow money, he will cut taxes, he will invest in infrastructure. If he does all that, Asean countries, including Malaysia, will benefit,” he concludes.

 

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