Transcript
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Speaker: Welcome to Under the Banyan Tree.
Speaker: It's Fred here in Hong Kong and Harold and I have just returned from a trip to Singapore for HSBC's Asian Outlook Conference.
Speaker: And while we were there we thought why not do a podcast from somewhere a little different.
Speaker: So today we bring you an episode we recorded in front of a live audience at HSBC Singapore with a focus squarely on the ASEAN region.
Speaker: We were lucky enough to have three great guests with us.
Speaker: Joey Wang, our head of ASEAN equity research.
Speaker: Joey Chu, who leads our FX research team here in Asia.
Speaker: And Pranjal Bhandari, chief economist for India and Indonesia.
Speaker: Harold and I are your co-hosts as usual.
Speaker: And as we like to say here on the podcast, let's kick off the conversation right here under the banyan tree.
Speaker: Let's just kick off Pranjul.
Speaker: I think the headlines are very clear this week.
Speaker: We have a new president in the U.S. But if you think about ASEAN and this idea of tariffs, for example, being imposed, how worried are you about the region?
Speaker: How should we think about the impact on the economies across ASEAN?
Speaker: What happens in Trump 2 depends a lot on the details of the tariffs, if any, that are going to be announced.
Speaker: If it is more of the same, for instance, tariffs on China largely, then maybe ASEAN can continue to benefit like it was in Trump 1.
Speaker: But if it is more wide, for instance, if there are blanket tariffs on countries like Vietnam or if there's a tariff on the Chinese import content, then I think there could be a lot of dispersion and diversion of chains again and a lot of disruption.
Speaker: On the back of that, there could be a new set of losers and winners.
Speaker: So, you know, there's a lot we still don't know.
Speaker: But on the whole, my sense is that ASEAN has relative resilience, a lot of trade between each other.
Speaker: They're going a lot in terms of services exports and that should, you know, give them some buffer.
Speaker: And Joy, what does that mean for equities?
Speaker: I guess for equities, we will continue to see a lot of volatilities.
Speaker: A lot of the details still need to be ironed out.
Speaker: So until we actually know the implementations, market is going to trade on headline news.
Speaker: So volatility creates opportunities to actually pick up some of the interesting stocks that have strong fundamentals.
Speaker: So the way you describe all of this is that actually there's a lot of policy risk coming out of the U.S., a lot of uncertainty.
Speaker: But if you look through the volatility, you actually seem to suggest, all of you, I think that ASEAN might be relatively resilient in this, that ASEAN might be a region where we look for relatively strong growth.
Speaker: currencies under pressure maybe for a while.
Speaker: Joey, but is it really something where we need to worry about?
Speaker: I mean, the balance of payments are all very strong.
Speaker: The fundamentals are robust.
Speaker: How do you look at the region overall in terms of the global context?
Speaker: I mean, there are some variations.
Speaker: Certain currencies in this region, it's a little bit more vulnerable because they naturally have FX demand more than FX supply.
Speaker: For example, if they run trade deficits, the natural balance of currency and exchange rate in the economy is that they have more importers trying to buy dollars.
Speaker: That actually leads to a bit more currency depreciation.
Speaker: So for some of these countries in the region, we're talking about Indonesia, Philippines, they run trade deficits.
Speaker: On the other hand, we have currencies in the region that are naturally more supplied with FX supply.
Speaker: So, the SING dollar, ringgit, these are thai bat, these are currencies that might be naturally just a little bit more resilient.
Speaker: So, it depends a little bit on the economy we're looking at.
Speaker: Pranjul, how should we think about resilience in ASEAN?
Speaker: This word is often heard, you know, the resilience of these economies.
Speaker: As an economist, what do you attribute that resilience to?
Speaker: Why is the region, you know,
Speaker: against all these headlines actually, why is it relatively immune against everything that we read?
Speaker: Yeah, that's a great question.
Speaker: I think there are a couple of things that stand out.
Speaker: ASEAN as a region, as a block, has become pretty big, exporting a lot between each other, visiting each other's countries as tourists, FDI flows in the region.
Speaker: So there's a lot of like intra-regional trade that's going on.
Speaker: I think that's one source.
Speaker: The other is diversification, as in traditionally ASEAN has been a big
Speaker: producer and exporter of goods, but it's really moving into services as well.
Speaker: You know, high tech services from Singapore, a lot of professional services from the Philippines, you know, these are becoming new sources of growth.
Speaker: And then if you look at the domestic economy, inflation is coming off.
Speaker: which is great for consumer power.
Speaker: Many countries, for example Indonesia, are cutting rates.
Speaker: Some other countries like Thailand and Indonesia are likely to give a fiscal stimulus this year.
Speaker: So these will be sources of growth which will still be around.
Speaker: So wait, inflation coming down, we got investment flows coming in, probably new industries popping up.
Speaker: That must be good for equities, Joy, right?
Speaker: Or at least for certain equities.
Speaker: Yeah, indeed.
Speaker: So I think Panju touched on Indonesia.
Speaker: So what we are seeing in Indonesia is a few things are turning around.
Speaker: First of all, inflation has stabilized.
Speaker: We have seen rate cuts started in the country.
Speaker: And more importantly, we are seeing increasing domestic income levels from the increase in minimum wage.
Speaker: The free meal program will also help improve household spending capacity.
Speaker: So all these are positive for earnings growth.
Speaker: And growth actually across ASEAN from a company perspective are pretty healthy in a high single digit to double digit range.
Speaker: So let me let me follow up on Indonesia because obviously the largest economy in Southeast Asia is at close to 300 million people.
Speaker: It's 13,000 islands in Indonesia.
Speaker: My wife always jokes, my wife is Indonesian, she always jokes, it's 13,000 islands in the afternoon, in the morning it might be 15,000, because there's a lot of small ones that are just about hovering about the water.
Speaker: So these numbers can change by the day.
Speaker: So let me correct this, it's between 13,000 and 15,000 islands, depending on the time of the day.
Speaker: But Pranjul, you're the lead economist on Indonesia, chief economist on Indonesia, in addition to other economies as well.
Speaker: There is this number, magic number out there, 8%.
Speaker: We have a new president in Indonesia, 8%.
Speaker: The economy is always going 5%.
Speaker: Can they really achieve 8%?
Speaker: What do you think?
Speaker: Oh, it is pretty high.
Speaker: It will take a lot of effort to get there.
Speaker: My sense is that Indonesia needs to start manufacturing a lot more different goods.
Speaker: Currently, almost 50% of its export basket is commodities.
Speaker: It doesn't really get you jobs domestically.
Speaker: You need to start producing more things.
Speaker: Those commodities we're talking about is nickel and stuff they make for battery makers, mostly Chinese battery makers that do that for electric vehicles, correct?
Speaker: Exactly, they have a lot of raw materials.
Speaker: The idea is that the big challenge is can they produce more things and move up the value chain and create jobs.
Speaker: And EVs is a great place that they are sort of starting out on.
Speaker: It went a little slower than one would have expected, but it's picked up pace now because there have been a lot of tax incentives.
Speaker: So I think that's one area to watch out for.
Speaker: But eventually they'll have to diversify a lot more, not just EVs.
Speaker: But they have been somewhat successful, right?
Speaker: I remember you mentioning once to me that actually if you look at the exports of Indonesia to the US, that is very different than what they export to China.
Speaker: Is that correct?
Speaker: Exactly, that's right.
Speaker: So if you look at Indonesia's export basket to the US, it looks a lot like Vietnam's export basket to the US.
Speaker: US.
Speaker: You know, furniture, textiles, footwear.
Speaker: It's just that it's all very small.
Speaker: It's like 25% of Vietnam's.
Speaker: It's there, but it needs to be scaled up.
Speaker: And I think that's the big opportunity.
Speaker: And if Indonesia can get that right, I think it can move towards the 8% target.
Speaker: Now, you mentioned electric vehicles.
Speaker: I wanted to ask, Joy, because electric vehicles is a theme across the region, actually.
Speaker: We have Vietnam as major ambitions, Thailand is the Detroit of Asia, as they call it, right?
Speaker: Or used to be, at least, a big automotive economy.
Speaker: What's happening on the EV space in those other economies?
Speaker: Indonesia, of course, big ambitions, but what about the other economies?
Speaker: So we are seeing sort of the Chinese actually being fairly aggressive moving into the ASEAN region.
Speaker: We see BYD cars everywhere in ASEAN.
Speaker: So there is a lot of competition coming from Chinese EV makers.
Speaker: As for the domestic sort of supply chain in Vietnam, I think it's still a concept that has to be proven.
Speaker: There's still a lot of work in progress.
Speaker: There are other industries as well, I think, that are flourishing, right?
Speaker: So, Pranjil was talking that they need to do more on, say, foodware, machinery and these sort of things, and nickel and EV batteries are doing.
Speaker: But in Malaysia, there seems to be a lot going on as well.
Speaker: Can you highlight that a little bit?
Speaker: Yeah.
Speaker: Just sort of on that, I think on the supply chain front, we do actually do quite a bit in terms of EVs, in terms of batteries and all those.
Speaker: So we are part and parcel of the supply chain.
Speaker: There's supply also to the Chinese guys.
Speaker: But in Malaysia, what we are seeing is actually across the board, EV supply chain, semi-con supply chain, and also most recently we've seen influx of data centers.
Speaker: So a lot of the US cloud services guys are actually coming to Malaysia, setting up data centers, and we're seeing huge amount of increase.
Speaker: Some of these data centers are incredibly energy intensive, right?
Speaker: So I know that, for example, some of the US companies that even bought stakes or have long term contracts now with nuclear power plants.
Speaker: Is that a bit of an issue?
Speaker: Are they addressing that as well in Malaysia?
Speaker: I think at ASEAN what's interesting is we actually have relatively high reserve ratio.
Speaker: So power generated in the country and power consumed are quite different.
Speaker: So in Malaysia we have about close to 40% of reserve ratio, which is why I think it looks really appealing to data center operator who's actually putting data centers in Malaysia itself.
Speaker: 40% reserve ratio means there is 40% excess supply over demand in terms of power.
Speaker: Correct.
Speaker: Which is probably one of the very few economies, I think, that have such a high ratio, at least in Asia.
Speaker: So exciting, exciting themes.
Speaker: ASEAN, we have data centers, we have electric vehicles, right?
Speaker: We're branching out into other industries.
Speaker: Pranju mentioned services even.
Speaker: But maybe it's a good time to take a quick break.
Speaker: And when we come back, we want to talk a little bit about Singapore as well, because we're sitting here in Singapore.
Speaker: And just coming in from the airport, Harold, I'm always just amazed at how this place just keeps changing with every year.
Speaker: You see new buildings sprouting up, the economy's still doing well.
Speaker: So when we come back after break, we talk Singapore.
Speaker: Joey, you are hail from Singapore.
Speaker: You're based here in Singapore.
Speaker: Give us a sense, there's a very open economy, a very small open economy.
Speaker: The currency, of course, is subject to all global trends, etc.
Speaker: US interest rates going up and we have risk of terror.
Speaker: Does Singapore catch that volatility or is Singapore now so robust and resilient and above these types of trends?
Speaker: No, definitely.
Speaker: Singapore is still very small and exposed to global trends.
Speaker: And you know, the funny thing about Singapore is that unlike other countries that tend to have their own interest rate regime, they control their own interest rates.
Speaker: In Singapore, we kind of give that up.
Speaker: And so interest rates just follow the US.
Speaker: So therefore, there's a lot of volatility imported from that angle as well.
Speaker: But what Singapore actually tries to control is the exchange rate.
Speaker: So I think what we've seen recently, or at least over the last 20 odd years, actually not just recently, is that the Singapore dollar tends to appreciate on a trend basis.
Speaker: I mean, there'll be some times when it does not, but generally over the last 20, 30 years, it's been appreciated on a trend basis.
Speaker: And that is how Singapore manages to control inflation, to actually still keep the economy relatively robust, given all the imported content that we have.
Speaker: So it's a very unique exchange rate system that we don't really encounter much and it seems to be working very well for Singapore.
Speaker: But Pranjal, let me ask you, you're an economist, moved here a few years ago to Singapore.
Speaker: Just as an economist moving here, what strikes you the most about Singapore?
Speaker: You know, you moved here from Mumbai.
Speaker: How do you perceive Singapore as an economic miracle?
Speaker: What kind of impresses you the most?
Speaker: Yeah, I think the diversity, I think the fact that they're able to attract the best from everywhere, from all of the countries.
Speaker: I think I find that the whole melting pot characteristic of Singapore, you know, very attractive.
Speaker: And what is sort of the cherry on the cake for me is the location, the fact that it's got all these amazing places, the rest of ASEAN all around it.
Speaker: And, you know, you can just hop on into a flight and take like lots of holidays literally every weekend, Malaysia, Indonesia, Vietnam,
Speaker: I think that's pretty exciting.
Speaker: Yeah, it's in the heart of ASEAN.
Speaker: But, Joy, if I wanted to move here, could I even afford an apartment?
Speaker: What's going on with real estate prices?
Speaker: Yeah, property is a hot topic and it is coming up in dinner table, coffee table, everywhere.
Speaker: Property price has gone up 4% in the country last year.
Speaker: This is despite the interest rate environment we're in.
Speaker: There is a very strong... How can it go up 4%?
Speaker: Who's buying it?
Speaker: Is it wealth here domestically?
Speaker: Don't forget Singapore actually charges 60% for foreigners who actually buy the property in Singapore.
Speaker: So there is an additional buy stamp duty.
Speaker: But what about people like Franjul who just came here?
Speaker: They would be able to buy it as long as you... No, she needs to pay 60% more than Joanne and myself.
Speaker: Yeah, so I think there are actually a lot of first-time buyers.
Speaker: We've seen both sort of HDB upgrade, what we call HDB upgrade.
Speaker: What is HDB?
Speaker: Sorry, what is that?
Speaker: So it's the housing development board, it's the government housing.
Speaker: 80% of Singaporean actually stays in HDB.
Speaker: But as people progress, we see people progress from HDB to private.
Speaker: We've seen a lot of upgraders actually
Speaker: going into the private markets in the last few years.
Speaker: And yeah, they're driving up the price.
Speaker: So Singapore property is now more expensive even, I think, than Hong Kong, correct?
Speaker: On an absolute basis, no.
Speaker: Hong Kong still is still higher.
Speaker: But I think, you know, what Singapore offers is the size of the apartment is still bigger than Hong Kong.
Speaker: So it is affordable living in... No surprise there.
Speaker: I think, Joy, you answered my question.
Speaker: I cannot afford here.
Speaker: 60%.
Speaker: Could you buy it and sell it to me at a 30% discount?
Speaker: Is that how it works?
Speaker: No, it doesn't.
Speaker: That wouldn't work.
Speaker: That doesn't apply.
Speaker: So I thought we could make a deal here under the banyan tree, but no.
Speaker: Okay.
Speaker: Well, we talked about Singapore, we talked about Indonesia.
Speaker: Let's move a bit further north.
Speaker: We have two economies interesting, Thailand and Vietnam.
Speaker: Vietnam being, of course, enormous development success in recent years.
Speaker: Joey, let me ask you, that's a frontier market as we used to think about this.
Speaker: The exchange rate is very stable, but the economy is growing.
Speaker: Do you see more liquidity coming into the market?
Speaker: Is the exchange rate kind of maturing?
Speaker: Is it something that you see international investors taking positions in, or is it still one of the more niche kind of currencies across Asia?
Speaker: I think in terms of the capital market is still quite small.
Speaker: So it's very hard for foreigners to invest in portfolio assets like equities or bonds.
Speaker: So a lot of the interest in the currency is still coming from corporates.
Speaker: And I think the unique thing about Vietnam is that even though they actually have a lot of exports, a lot of trade surplus, a lot of it is owned by foreign companies, MNCs.
Speaker: And so therefore, they always have this
Speaker: requirement or demand to repatriate their profits back to their home countries.
Speaker: That generates constant FX demand.
Speaker: And so dollar dong, the V&D currency, the Vietnam currency, remains on a bit of a depreciation trend as of recently.
Speaker: I think in equities we've seen an initial inflow, but maybe Joy, you know this, but it looks like holdings in Vietnam have come off a little bit over the last couple of years, correct?
Speaker: Yeah, we've seen a bit of fluctuation.
Speaker: We had a change in presidencies.
Speaker: So that has created some volatilities in the market.
Speaker: There is a little bit of stress in the real estate markets and the lending markets.
Speaker: So all these has added pressure on equities.
Speaker: But we are seeing things being resolved over the last few years.
Speaker: And we think that momentum will continue into 2025.
Speaker: And the other economy I just mentioned, Thailand, actually, is perhaps less of a manufacturing kind of story compared to Vietnam, but it's a services still story with a lot of tourism.
Speaker: And I gotta ask you, Pranjul, I hear the hottest ticket in town right now is for Indians to celebrate their weddings in Thailand.
Speaker: And I don't know how many tens of millions of Indians get married every year, but if only a fraction of them do it on the Thai beach, that should be great for the Thai economy.
Speaker: Have you seen that trend?
Speaker: Yes, absolutely.
Speaker: I can actually see it in India's balance of payments, where a lot of money is leaving India and going to countries like Thailand, where Indians want to go and get married or want to go on holiday.
Speaker: And actually, Indian tourism and people leaving India and being curious about the rest of the world has really been something which has been good for global tourism over the last couple of years.
Speaker: But on the topic of services, I think it's very interesting, Fred, that we always think about Asia as this manufacturing hub in the world.
Speaker: But I think what's also rising on the side is services, like tourism services in Thailand, financial services exports from Singapore.
Speaker: Medical services.
Speaker: medical services from the Philippines, light asset sales, you know, Philippines photographers, musicians all around the world like selling services.
Speaker: I think that's a very important story of growth and resilience as well because the world might be de-globalizing in goods trade but it continues to globalize in services trade.
Speaker: and maybe this is a good note to end on because it brings us back to very beginning why is ASEAN so resilient despite these headlines you can see out of Washington DC and all the worries we have in the world economy it's so diverse isn't it Harold we have Indonesia we get electric vehicles and natural resources we have data centers we have Philippine musicians and we have everybody in India celebrating their wedding on a Thai beach and no I
Speaker: you know I like history, so I'm gonna go back about 1500 years now.
Speaker: And in those days you had Indian monks traveling to Thailand and Indonesia, not just to get married, monks typically didn't do that, but more to build temples and stuff.
Speaker: You had Chinese traders here, they actually outsourced
Speaker: to a large extent the production of iron, of tin, to Malaysia, to Singapore was kind of a small sort of place here.
Speaker: The property price is much lower in those days I presume as well.
Speaker: So what we actually see now is to a certain extent there's always been a constant in this region.
Speaker: There's a vibrant region that connects India, China and its own sort of large population and that in itself creates some sort of dynamic or momentum I guess that
Speaker: Harold, the region is as vibrant as the colors on your shirt.
Speaker: Unfortunately, it's an audio-only podcast, but if the audience could see it, it's just an automation of colors.
Speaker: It's a mosaic.
Speaker: Southeast Asia, the diversity, I think, is a strength.
Speaker: And we want to really ask our fantastic panel here today.
Speaker: Joy, Joey and Pranju.
Speaker: Thank you very much.
Speaker: And thank you everybody for joining us.
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Speaker: See you again next week.
Speaker: See you next week.
Speaker: Thank you.
Speaker: Cheers.
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