What and Where to Invest 2016 Key Theme

Inside ASEAN: Our View on the Region – RHB Asset Management

IMF Key region GDP forecast: World GDP forecast revised downward except for EURO area stay
flat
 However growth prospect for Developed countries and Emerging markets is still positive
 The world is still growing, but with diverging growth trend across major economic blocks
 Similarly, growth for most Asia economics were downgraded except for China, India and
Philippines stay flat
 In low inflation environment, PBoC (China) still has room to loosen monetary policy, expect
25bps cut in policy rate and 100-200 bps cut in RRR by end 2016
 Despite FED (US) raise interest rate, ECB (Euro) and BOJ (Japan) still at ultra-loosing policy, more
easing expected from PBoC (China) too. Overall, liquidity expected to up 23%
 Asian currencies weaken relatively to USD in 2015, we are not alone, but we (MYR) are the worst
at negative 22.50%
 Most major indices have mixed performance for 2014 & 2015 respectively (one year gain,
another year loss) except Japan has 2 years gain consecutively and Malaysia has 2 years loss
consecutively
 Indonesia still waiting for right policies to rejuvenate the market
 Philippines is an expensive market + election year, expect more sluggish decision making by
government
 Singapore is an Yield market, yield perspective is the highest among ASEAN peers
 Thailand in need of stimulus, infrastructure projects have been a long wait. The index have been
boosted by healthcare & transport sector (tourist related)
Malaysia
 Private consumption trend higher, crucial to spur growth. Overall GST, weaker ringgit,industry
staff layoffs and uncertainties abroad have shattered confidence level
 Fuel subsidy cut, GST implementation, toll hike, income tax hike – often the most disliked
policies are right policies to economy
 Expect gradual appreciation on MYR once the above uncertainties are removed
 Technology, Industrial products, consumer are beneficiaries of weaker MYR and post GST
sentiment, whereby market negative sentiment and tightening of credit facilities weigh on
property and finance sectors
 Highest outflow in history from foreign ownership for consecutive 2 years (6.6bln & 19.5bln in
2014 & 2015 respectively)
 Market valuation turning attractive as PE ratio back to mean level and PB ratio is -1 standard
deviation below mean
 KLCI 2016 Target is 1820, pegged at 2016 PE of 15x
 Overweight consumer, construction & building materials, industrial manufacturing, banking and
oil & gas (buy on dip)
 Remain high investment level (more than 90%) and focus on stock picking
 Continue to expect long term annual return of 4.5% - 5.5% in bond market

EM corporate debt has surged since 2007. Chinese government’s balance sheet remains strong  Devaluation of CNY has spill effect to the rest of Emerging Markets Asian  Do not have to worry for Asia market as Asia has good demographic story. not collapsing  Chinese property market recovering  Decelerating China GDP has had a devastating effect on commodities  Corporate debt should be closely watched. government debt to GDP remain low compared to developed bloc  For India market. but is the world still not ready for the normalization  Previous policy. RHB Smart Treasure Fund. Government revenues have fallen because of lower oil prices  High household debt in Malaysia is a constraint to economy growth.25% throughout 2016  Extend & overweight duration vs benchmark  Overweight corporate bond & trade on Government bond to enhance return Related Funds: RHB Global Fortune Fund. it should be rise. discounted forward PE ration for MSCI Asia ex Japan vs MSCI World. Now applicable to China too  China economy slowing is due to transition of economy. every 10% drop in oil price has 0. Expect continuous support from local institutional investors like pension funds and insurance funds  OPR expect to remain at 3. we can see positive impact starting to be visible i. largely driven by China  More stimulus likely to be implemented to temper China slowdown. RHB Asian Income Fund Global Equities Outlook – Aberdeen Islamic Asset Management US  US rate have been falling for a very long time.e investment projects start to spur and current account deficit is narrowed  Companies are returning more (dividend payout) to shareholders  Asian companies are cheap. printing money doesn’t make people want to borrow it or to lend it  US average hourly earnings growth is still stubbornly flat at 2+%  Dividends and buybacks exceed reported profits thanks to cheap monetary policies  Early warning sign on US high yield bonds which comprises high yield energy bonds China  Previously we said US catch a cold.2 drop on GDP. attractive PB value  Asian currencies depreciate against USD Malaysia  Malaysia suffered largest foreign outflow among all ASEAN counterparts  Malaysia is singled out as Asia’s most oil dependent economy. GST weigh on consumption . follow by bank credit slowing and money supply decreasing. room for policy flexibility (can further cut interest rate under low inflation environment). all countries will sneeze too.

Class A. boosted by recovery in US demand and weak Ringgit  Potential upside surprises in commodity prices: El-Nino support CPO Prices. if tightening USD too quickly. more lending rate. low oil price and strong USD (higher purchase power for imported goods)  Path of rate hike is matter. GDP for secondary industry (old economy: manufacturing) trend lower while GDP for tertiary industry (new economy: financial & services) trend higher  Question is whether growth in consumption can outweigh the drag of industrial slowdown?  Expect continued easy monetary policy. Aberdeen Islamic Malaysia Equity Fund . Current account and fiscal deficit woes remain a concern. offset by a rebound in exports  Consumption will slow but cushioned by budgetary support and increase in infrastructure spending  Higher than expected GST collection offset lower oil related revenue  Export still a bright spot. global growth will be pressured Europe  Euro economic data points to recovery in Eurozone take place  Money supply growth points to accelerating industrial production China  China is now transitioning to a more consumer driven economy  However the transition will take time as Asians have higher saving tendencies against western spending pattern  Overall slowing net GDP growth in China.5bln from local equities in 2015 . weaker MYR to boost competitiveness Related Funds: Aberdeen Islamic World Equity Fund . high household debt level and imported inflation via weak MYR eroding purchasing power  Corporate earnings margin could under pressure and inflationary pressure through supply chain  Total injection of RM20bil by ValueCap will support KLCI  Foreign outflow RM19. rebound in oil prices will brighten sentiment on Malaysia  But consumer spending lower due to GST. RRR rate cut  IMF announced decision to include Yuan into IMF SDR. internationalization of RMB Malaysia  Growth is expected to moderate to 4~5% in 2016  Private expenditure to slow. foreign reserve have fallen at rapid pace  Business and consumer sentiment falling back to post global financial crisis level  Exports await a global recovery. but if look into detail. offsetting weakness in energy and exports  Consumption in US supported by tightening labour market.Class A 2016 Market Outlook for Asia and Malaysia – Kenanga Investors US  Consumption in developed economies continue to support global growth  Growth driven by strong private consumption & residential sector.

KWAP. Tabung Haji supported the market well  KLCI 2016 target is 1742. moderate global recovery and election in 2016  Stick to tech exporters. making it more resilient against external headwinds  Household savings ratio at 20. Utility stocks with stable earnings and dividend yield  Plantation and Oil & Gas may provide opportunities if commodities price rebound Related Funds: Kenanga Asia Pacific Total Return Fund. selectivity is needed to generate alpha  Prefer tech. neutral on tech sector – underweight Taiwan Indonesia . but wage growth still quite muted Rate hikes actually has a small impact to equities as current average debt duration for S&P companies is 9.4% vs 5.9 years and 85% of companies have fixed rate debt  Emotional aspect may affect equities  Higher rate doesn’t mean negative equity returns. maintain positive bias for growth stocks over value / defensive picks  Like Manufacturers with export earning. PNB. Construction stocks (MRT. LRT). therefore expect market to be volatile – Underweight for now Euro  Its growth policy is equity supportive  Foresee better earnings outlook with brighter macro environment  Low oil prices. based on PE of 15x based on one year forward earnings  Market remain volatile. KWSP. consumer retail and yield provider – underweight Korea Taiwan  Could be a value trap as earnings expectation is just 4% though valuation are cheap  Affected by China slowdown. offering good trading opportunities  Selective in stock picking. dovish ECB and weaker Euro will continue create tailwinds for economy  Domestic demand among Eurozone pent-up. However. autos. dependent on valuations and strength of economic recovery. Kenanga Growth Fund Growth Opportunities in Asia Pacific via REITs & Equities – AmInvest US     See modest growth of 2. local institutional investors like Fund Managements.6% in US considered high  Improving credit transmission (75% lending done via banking system) helped domestic demand  Continue to overweight Europe on relative basis China  Consumer / Service sector and technological sectors have done well  Seen downgrade in earnings for the past 2 years in a row due to weak energy and material prices  Valuation above mean – underweight China Korea  Not so exciting due to moderate global demand and softer domestic demand  Valuation is above mean.5% US has positive earnings but consensus expectation of 8% may be too optimistic US is moving near to full employment.

continued current account surplus and China’s investment in Malaysia  ValueCap expect to inject RM20bln in market  Foreign equity shareholding is low and become relatively stable  Market too optimistic on 2016 earnings growth  Consumer confidence is at record low. Korea and Taiwan)  Strong case for hospitality theme in Japan  Hotel occupancy rate very high.7% end sept 2015 Singapore  Singapore REITs 10-years historical forward yield around 6. Conditions could improve in 2016 as infra spending is set to rise approximately 30%  Bank of Indonesia adopted accommodative monetary policy to support growth  Sectors to benefit: construction. cement and property  Overweight as valuation looking better Singapore  Government to push more productivity driven growth model  Valuation is cheap but earnings expectation is low  4% dividend yield provide downside protection – Underweight Thailand  Domestic demand is weak. AmSchroder European Equity Alpha .childcareandhealthcareREITswithhigheryieldingassets  REITsofferinggrowthprospectseveninthefaceofachallengingmacroenvironment  Long lease expiry profile is due to long leases signed with child care operators Japan  Tourists to Japan increases tremendously (mainly China.9% vs 10-years government bond yield around 2.Class B (MYR).5%  Attractive on high yield spread Related Funds: AmAsia Pacific REITs .g. mid cap manufacturers / exporters and selective large caps – Neutral REITs Sector Australia  Australia Nichesectorse. pushing 90%  Office vacancy rate averaged 4. transportation cost has increased and debt % of GDP has worsen vs Asian and Global Financial Crisis  Focus on yield. while rising US rate and further moderation in China will weigh down the market  Focus are on infrastructure. tourism and healthcare  No strong recovery or catalyst in sight – underweight Philippines  Valuation are attractive and would prefer conglomerates for exposure  Key event would be the presidential election  Overweight despite earnings downgrade to estimated 12% for 2016 Malaysia  Sentiment on MYR may improve with resolution of 1MDB.

is about what media want to show to public • 5th Plenum proposal i. which currently account for approximately 3% of household assets • Over past months. bio-tech. SCRC. Fiscal and land reforms are needed to accompany urbanization v.90. CBRC and CIRC iii. lack of coordinate between different ministries. New growth drivers: Semi conductor. numerical control machine. Urbanization: Urban Hukou population should reach 45% of total population by 2020. new energy. current at low single digit of % per 100 people China • A new normal of slower but better quality economic growth • Service sector (tertiary industry) continue to accelerate. failed in proper implementation due to different political parties involved • After Modi took place. should follow visible economic catalyst in India over the coming quarters • India has a very mass unexplored market • Automotive . lower the inflation rate. mobile communication. build up of FX reserves. Blooming Lotus – Manulife Asset Management Services India • Previously India was facing many challenges like coalition of multiple parties slowed the decision making down. Growth target: average growth for the next 5 years should be at least 6.a possible merge of PBoC.55 and PB at 0. and expected to have inflation dynamics GDP growth • Low ownership of equities by Indian households. India has been the top overweight country among foreign Asia ex Japan and Emerging Market funds. historical low for valuation of H-share index • Insurance products penetration is around 50% of global average.Strengthening Bamboo. Population: All couples allowed to have second child. hence make investors turn to insurance products . indicate economy is rebalancing towards consumption and services • Tertiary industry contributed to more employment than secondary industry at 41%. postpone the retirement age gradually • China has been easing for awhile and expected to ease more in 2016 • China H share valuation at very attractive level. to replace shadow banking. with a 6% growth • China consumption / GDP is picking up • What media is reporting doesn't mean is truth.5% to double the GDP between 2010 and 2020 ii. still have large potential to rise. pharmaceutical R&D.shrinking of fiscal and current account deficits. nuclear power. Rate cuts dragged returns of wealth products. manufacturing 2025 and One-Belt-One-Road iv. India has unlocking growth in sustainable way .Large potential of car penetration to rise. Financial reform: Develop the high yield bond market. PE at 6. push ahead Internet+. more integrated financial regulation framework .

Most transparent. contribute more than 50% of total return of Singapore equities • Singapore has strong track record of sustainable dividend payout • Large REITs market as in total market capitalization in Asia Pacific • Stable total returns with the 3R . successive won in 2015 election.MYR Investment Themes and Outlook for the Regional Markets – Eastspring Investments • • • • Most of Asia regional market performance under negative territory (Local currency) for the period of 31 Dec 2014 till 07 Jan 2016 MSCI Asia Pac ex Japan index and EPS trend downward Previously the main drivers of Asian growth over the last several years are global trade. back with well diversified economy (less susceptible to single sector shocks • From third world to first over the span of a generation • The resilience of Singapore economy is reflected in its strong currency • Studies suggest that companies with strong governance perform better and will reduce accounting risk.e. services to a knowledge based economy • One of the highest dividend yield market among Asian peers. DY of 1~3%. They increased their savings despite of interest rate dropped near zero . Chinese consumption companies to adjust their business models Related Funds: Manulife India Equity Fund.Resilient business model. however Chinese property developer PE at -1 SD lower • Chinese government's anti corruption campaign has driven. Least corrupt country in Asia • Consistent and steady GDP growth. Easiest place to do business. asset risk. liability risk and strategic policy risk • Expansionary 2015 budget. First investment potential. The crash in asset prices and the rise in debt have affected household balance sheet and spending habits. China and commodity boom. profits and cash flow + Reliable management + Repeatable dividend payouts • Optimal balance between Dividend Anchors (High and sustainable dividend yielding stocks. both PE & PB at multi years low • Continuous evolution has always been Singapore's strength . looser monetary policy. Manulife China Equity Fund Singapore Equities: An Evergreen Investment – Affin Hwang Asset Management • Strong international recognition with multiple accolades i. 70~80% of portfolio) and Dividend Growers (Quality stocks with strong business growth. 20~30% of portfolio) • They have flexibility to invest offshore with take into consideration of currency view Related Fund: Affin Hwang Select SGD Income Fund .• National property average selling price and sales value have significant growth. Top 3 in foreign trade. but all three are in a structural downturn recently The crisis of 2008-2009 created a balance sheet recession.evolving from manufacturing. DY of 3~10%.

government spending and valuation plays thrown up by market volatility Related Funds: Eastspring Investments Global Leaders MY Fund. exposure to China. Eastspring Investments Small-Cap Fund . Business investment has continued to struggle and unfortunately for Asia. were reluctant to spend The problem doesn't end with just poor global growth. stimulate too much the markets worry that the day of reckoning will be even more brutal and hence nervousness • Most economies have used monetary policy to the greatest extent possible. While valuation is not expensive. both monetary and fiscal • To ensure that growth does not collapse. beneficiaries of low commodity prices. this is most important part of growth • The sluggishness of business investment is largely due to firms holding back capital spending in responses to low sales • China policy priority is to rebalance the economy away from investment towards consumption demand. commodity exports and dollar debt will weigh on growth • Valuation in Asia are reasonable as market participants have largely discounted challenges facing Asia • Neutral on the region.2% but now is just close to 1% • While global growth is set for a modest recovery in 2016. the main component of rising demand is consumption. a 1% rise in global income increased trade by 2. corporations having faced a liquidity crunch after a crisis. In 1990s. but Malaysia and Indonesia have constrain in their use as MYR and IDR have been very weak • Easing has not been very effective in boosting economic activity. this has the effect of slowing Chinese economic growth and that means less imports • We view hard landing as unlikely as the authorities have policy space. but we don't see any catalyst in near term for the market to re-rate • Opportunities exist for the bottom up stock pickings. stimulate too little the markets will worry about growth. Commodity importers stand to benefit and sectors that have exposure to rising US consumption may boost growth • On the other hand. dollar earners. Companies feeding into US consumer. global trade has become less sensitive to increases in income. they need to stimulate and they have been doing that for over a year • In short.• • Similarly. Credit growth has remained poor despite easing • This leaves fiscal policy and we believe how aggressively it been conducted will be the crucial determinant of how each economies perform in 2016 • Countries that can generate domestic demand and productivity growth will be preferred.