This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on April 18 - 24, 2016.
The interest rate hike by the US Federal Reserve last December has resulted in less volatility in emerging market economies this year. Clement Chew, CEO of Apex Investment Services Bhd, says the Indonesian property sector, in particular, is looking attractive as the impending tax amnesty bill is set to be passed.
Emerging market equities, particularly Indonesian property stocks, are starting to look attractive, says Apex Investment Services Bhd CEO Clement Chew. This is due to macro factors such as the stabilisation of emerging market currencies and lower foreign ownership of bonds and equities.
The US dollar is expected to remain rangebound following the Federal Reserve’s interest rate hike in December last year. The rate hike has helped stabilise emerging market currencies. Also, the massive capital outflow from emerging markets over the last three years is expected to result in less market volatility this year.
“If you look at the last six rate-hike cycles, the [US] dollar tended to be rangebound after the Fed increased the interest rate, which is what we are going through now. You can see that the ringgit and a lot of emerging market currencies have strengthened [and stabilised]. For instance, the rupiah has been steady against the US dollar after Indonesia cut its interest rate three times this year,” says Chew.
“Another big thing in the last three years was the US$117 billion outflow from emerging market equities. This is something I like as you won’t have too much foreign ownership in the market. This means there will be less volatility and it is good for emerging markets.”
Chew likes Indonesia for its favourable “top-down picture”. Since Joko Widodo (better known as Jokowi) was elected Indonesian president in October 2014, the country’s stock market had rallied on the back of market expectation that he would implement major reforms, reduce red tape for foreign companies and push through critical infrastructure projects. But the market fell back a few months later as international investors’ expectations were not met.
However, investors have started to regain confidence in the market, owing to the progress made by the Indonesian government, says Chew. “We went on company visits. The people there are now more positive about the government [and the implementation of its plans],” he adds.
Chew is bullish on the Indonesian property sector and its potential because of the anticipated passage of the country’s tax amnesty bill in the third quarter this year. The implementation was originally planned for early this year to boost the government’s coffers by IDR60 trillion. The money will be used to boost government spending after its budget deficit of 2.53% of gross domestic product (GDP) last year exceeded its target of 1.90%.
Indonesia’s fourth tax amnesty bill since independence is expected to attract money kept overseas and net an additional US$4.4 billion in revenue this year. However, the talks between the administration and the House of Representatives on the policy have been delayed.
“We think there may be some opportunities when the policy is implemented. It will keep funds in Indonesia and the money will probably go into the property market,” says Chew.
This is because the Indonesian market lacks investment alternatives, so the property market is expected to be the beneficiary when the wealthy channel their money back to the country, he explains.
“With the new tax amnesty bill in place, the wealthy are also less likely to take money out of the country or under-declare their income,” he adds. “As experienced by many Asian countries, real estate investments have proven to be one of the best ways to protect and enhance the assets of the wealthy.”
Indonesia’s property sector is a laggard when compared with other sectors such as financial and consumer discretionary. These two sectors saw demand increase after the Indonesian central bank cut interest rates. But there has not been much change to the demand in the property sector.
Chew is also bullish on Thailand and South Korea. “With the more benign US interest rate normalisation cycle and Indonesia embarking on its monetary easing cycle, we expect Thailand to follow suit. We are also expecting the military-led government to accelerate infrastructure spending, providing a lift-off for economic growth,” he says.
“This optimism has been somewhat dampened by the recent decision of its central bank to bring down lending rates without a corresponding cut in deposit rates. But the infrastructure story remains viable as it is one of the more realistic options left for the Thai government to revive the economy.
“As for South Korea, China has overtaken the US as its second largest export market. Therefore, South Korea will be a key beneficiary if China recovers against expectations. We favour sectors in South Korea that have a larger exposure to China.”
A wealth of experience
Prior to joining Apex, Chew worked in the financial sector, notably with JP Morgan, for almost two decades. He started out as an equity analyst at Merrill Lynch in 1991 before being transferred to its New York office two years later to cover Asia ex-Japan sales. In 1995, he joined Robert Fleming & Co (now known as JP Morgan) as vice-president of the greater New York City area, in charge of Asian equity sales.
Chew decided to return to Malaysia in 1998. “My father passed away in 1997 and it made me realise that time with friends and family [back home] is precious. Like the saying goes, ‘All the gold in the world cannot buy you one more breath’.”
By the end of 1997, the Kuala Lumpur Stock Exchange had plunged from more than 1,200 points to less than 600 while the ringgit had lost 50% of its value. The Malaysian economy would reel from the Asian financial crisis the following year.
Chew was worried that he would have to give up his career advancement prospects. Moreover, the JP Morgan team in Malaysia was considerably smaller than what he was used to.
“I appreciated what I had in New York. There were dozens of fund management companies, investment banks and hedge funds there. You could choose where you wanted to work — sell equities or fixed income; be a fund manager, derivatives trader or compliance officer. When I decided to come back, everyone asked me whether this was the right thing to do,” says Chew.
“It was then that I reached out to one of my clients, who was with the Abu Dhabi Investment Authority running an Asian fund. He told me Malaysia would not disappear and would come back. ‘Go and do not worry,’ he said.
“I took a lot of assurance from what he told me. Later, it turned out to be one of Malaysia’s darkest times. But like he said, the country rebounded and recovered from the crisis. I have never regretted coming back.”
There was no reason to. Under his leadership, JP Morgan Malaysia expanded into stockbroking after it acquired a foreign broker’s licence in 2005. When Chew left for Apex, there were 120 people at JP Morgan Malaysia, compared with about eight in 1998. During his tenure at the company, his roles included chairman of JP Morgan Securities (M) Sdn Bhd and senior country officer and non-independent director of JP Morgan Chase Bank Bhd.
Chew sees his acquisition of a stake in Apex and joining the firm as CEO in December 2014 as a confluence of the people and events in his life. The opportunity came when the directors of MBM Resources Bhd — an investment holding company that trades in and distributes motor vehicles and related spare parts through its subsidiaries — approached him to jointly acquire a stake in Apex, which they wanted him to helm.
“I knew some of the first-generation directors at MBM when I was working with IGB Corp Bhd many years ago. Some of the directors of IGB were also directors of MBM. They were interested in the fund management industry and found me,” says Chew.
“Ng Seng Leong, a former colleague [at JP Morgan Group], was interested in the business when I approached him. He came back to Malaysia in 2014 [from Hong Kong] and joined the firm as head of investor portfolio management.”
Ng was previously managing director and head of trading at JP Morgan Asset Management in Hong Kong, managing about US$60 billion worth of assets.
Chew then persuaded Low Seow Che and Gary Lim to join the firm as investment committee members and regional fund managers. Low was chief investment officer at JP Morgan Investment Management in Singapore and an asset management firm called JF Asset Management in Hong Kong, where he managed an Asian portfolio with US$3 billion worth of assets. Lim was with OCBC Asset Management before joining Nomura Asset Management as deputy chairman of its stock selection committee.
Tan Keah Huat, who had been director of Apex since 2001, continues to serve as the firm’s executive director, while Dzulkarnine Datuk Kazim, who had been fund manager at Apex for many years, is now head of fund management.
“By combining our experience, we have investment and fund management experience of more than 140 years. This is our strength,” says Chew.
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