Cavendish sticks with TIPs despite lull in performance

Thailand, Indonesia and the Philippines (TIPs)have struggled recently but remain a solid investment case, Liz Evans at Cavendish has said.

The group’s investment director said the so-called TIPs countries have strong fundamentals, robust economic growth and attractive valuations – a trend set to continue over the next few years.

Evans said: “It is not just about China. Indonesia is forecast to have over 6% growth in GDP this year and next, and the government has already upgraded the 2011 forecast to 6.6%-6.8%.”

Demographics are also on side. The population in the TIP countries are large, young and growing, with a propensity to spend rather than save. Under 25s make up 44% of the population in Indonesia, and that figure is closer to 50% in the Philippines.

Currency appreciation has helped returns over the longer term and Evans is backing this to continue.

She said: “Robust economic growth and the government’s willingness to see currencies appreciateshould continue to support the regions.”

However, Evans admitted that equity valuations are no longer cheap in the region.
She said markets have suffered recently due to the twin headwinds of inflation and rising interest rates. However, she added this was temporary, and expected the region to see more growth once inflation dissipates.

She said: “By the end of the third or fourth quarter, hopefully we will see the end  of rate hikes, or at least the end of the tunnel, but these remain strong headwinds.”

She noted if the currencies became too strong, there was a chance that some kind of currency controls could also be introduced.

Evans’ Cavendish Asia Pacific fund is cumulatively overweight the region. In April, it had 8.1% invested in Indonesia, 4.7% in Thailand and 0.5% in the Philippines compared to the MSCI AC Asia Pacific ex Japan benchmark, which was weighted at 2.5%, 1.9% and 0.6% respectively. The fund has lagged peers in the IMA Asia Pacific ex Japan sector, returning 7.4% over the year, compared to an average return of 11.4%.