Bareksa.com - Samuel Le Cornu, Senior Portfolio Manager, Macquarie Investment Management says the impact of China’s rate cut on ASEAN equities has been positive. It could be a good time to take profits though small and mid-cap sectors are feeling the credit squeeze. Pamela Ambler reports.

(SOUNDBITE) (English) REUTERS REPORTER, PAMELA AMBLER, SAYING:

"Alright Sam, let's talk about China's rate cut and its impact on the Southeast Asian equity markets. It's done great for mainland stocks but what are the effects in Southeast Asia?"

(SOUNDBITE) (English) SENIOR PORTFOLIO MANAGER, MACQUARIE INVESTMENT MANAGEMENT, SAMUEL LE CORNU, SAYING:

"I think it'll be less impacted. I think really the mainland and those stocks in A and H are having the rally at the moment. Perhaps it's even time to take some profits in Southeast Asia. You look at the relative valuations, so Thailand's around about 13 times P/E, Philippines are around 19, Malaysia's around 14.5 to 15. Singapore's sort of range-bound as it's more of an exporter and it's been hurt I guess from that oil price. It does a lot of oil services business as well. So I don't think the rate cut's the most key thing for Southeast Asia at the moment. I think, you know, looking at them on the individual merits, looking at the economy, I think there's other functions and moves which will impact those indices more so than the China rate cut."

(SOUNDBITE) (English) REUTERS REPORTER, PAMELA AMBLER, SAYING:

"And given a lot of the companies in that region are more on the smaller scale, they're more small to mid-cap sized companies, are they going to be hurt with access to credit?"

(SOUNDBITE) (English) SENIOR PORTFOLIO MANAGER, MACQUARIE INVESTMENT MANAGEMENT, SAMUEL LE CORNU, SAYING:

"Yeah. So there's a couple of things here. I think access to credit's one thing. If you look at where the rate cuts are occurring, particularly in Thailand - the BOT's continuing to cut and the economic data macros still seem very, very soft - GDP this number this year. You've got to look at the other areas like Indonesia, you know, rates are still very high, inflation's still somewhat of an issue. So it's very important to look at that. I think at the end of the day, it's those valuations there and that's more important for the equity markets. The one comment about the small and mid-caps I think we need to put into context is that they're a bit more shallower in terms of the liquidity. And if you go back a couple of - oh, now what - March 2013 when some of the QE tapering comments came out, those economies in Southeast Asia were the most vulnerable. And those had the most vulnerable currencies as well. So we saw significant moves there. So it is a shallow market, not just on the equity side but also on the currency as well."

(SOUNDBITE) (English) REUTERS REPORTER, PAMELA AMBLER, SAYING:

"And given the fund that you manage, what percentage are you invested in in Southeast Asia and what are those sectors?"

(SOUNDBITE) (English) SENIOR PORTFOLIO MANAGER, MACQUARIE INVESTMENT MANAGEMENT, SAMUEL LE CORNU, SAYING:

"Yeah, so if you take any of the indices, take MSCI Asia ex-Japan, even large or small - so if you want to choose the small-cap because you mentioned small-caps before. You know, Southeast Asia excluding Singapore - so let's look at ASEAN 4 - that represents around about a 15 to 16 percent of our portfolio. Inclusive of Singapore, you've got around about a quarter of the portfolio. But nonetheless, it's - we're underweight and we're favoring North Asia for that matter. So I think we're a little bit different. We've taken a lot of profits in Southeast Asia. We're typically sellers when there's lots of buyers, so we hope that we've got the timing right. We're just finding it a little bit difficult ot find really good opportunities at the moment on the corporate level."

(SOUNDBITE) (English) REUTERS REPORTER, PAMELA AMBLER, SAYING:

"And how are those sectors performing?"

(SOUNDBITE) (English) SENIOR PORTFOLIO MANAGER, MACQUARIE INVESTMENT MANAGEMENT, SAMUEL LE CORNU, SAYING:

"Yeah. It's been mixed. So you've had some very, very strong performers, and then you've had very poor performers as well. So the indices' level and the sector bias and the way that you look at the valuations as well, there's a huge dichotomy. So healthcare's very high in terms of the multiple. And then you've got some of the banks which are lower multiple, but it's all about being very selective, being very bottom-up, and for us at the moment, we always focus on domestic demand. And that's where we're really positioned. So healthcare, consumer discretionary, we're looking at the staples, and even some of the industrials as well. So they're the sectors that we favor which will be less affected if there's any largecurrency moves."

(SOUNDBITE) (English) REUTERS REPORTER, PAMELA AMBLER, SAYING:

"And going forward, are there any downside risks to investing in the ASEAN area?"

(SOUNDBITE) (English) SENIOR PORTFOLIO MANAGER, MACQUARIE INVESTMENT MANAGEMENT, SAMUEL LE CORNU, SAYING:

"Yeah. There's always downside risk. Lots of risks. You know, you've got to look at some of the countries like Thailand has a high sort of debt level on the household point of view. But then if you look at it where you've got the excess foreign reserves as well, Thailand's in a better position to say someone like Indonesia. So it's hard to, say, to blanket the whole region as one on those risks from the macro point of view. On the outset in terms of looking at the corporate point of view, again, looking at the companies on their individual merits, there's a number of risks which are at play at the moment. And the number one would be - in our view - is that they as a whole may miss future earnings or at least that earnings deliverability. We think you're paying up in terms of those valuations are quite rich at the moment. So we think the P/Es have run ahead of themselves and now's the time to essentially take some profits in Southeast Asia."

(SOUNDBITE) (English) REUTERS REPORTER, PAMELA AMBLER, SAYING:

"Great to know. Thank you very much for joining us, Sam."

(SOUNDBITE) (English) SENIOR PORTFOLIO MANAGER, MACQUARIE INVESTMENT MANAGEMENT, SAMUEL LE CORNU, SAYING:

"Thanks for having me." (Source Reuters)