Asian Markets rose in November, with the Hang Seng Index +3.3%, MSCI Asia ex Japan Index +0.6%, MSCI AC ASEAN +1.8%, Thai SET Index +0.4%; Knight Mekong Fund -0.3%.
As we look forward to 2018, with stock valuations riding high, easy gains are probably behind us. Although fresh from his success with tax reform President Trump may now try to go forward with his infrastructure priority. It is not too late for rebalancing China trade with win-win infrastructure joint ventures. If the US tech sector continues to lose its market leadership, as it has in recent days, institutions may increase weighting in emerging markets next year.
The Thai Stockmarket remains reasonably valued, especially in the banking, energy, property and agribusiness sectors, and should continue to perform well next year. With the high liquidity in the market, more IPOs should be floated on the SET and MAI, perhaps finally including some from the Mekong Region. For our funds, 2018 is “IPO Year” with at least 5 potential portfolio IPO’s or re-listings lined up, which could result in a stellar year. Max Myanmar cement is slated for the Singapore 2nd “Catalyst” board; Gold Cement for the Thai MAI; BRM Agro for Thai MAI or Singapore Catalyst; LVT Engineering (renamed) likely to be relisted on the MAI; and KTECH having just announced one more Quarter of profit should finally relist in January.
Thai politics is likely to heat up next year ahead of elections indicated for November. This should be generally good for the Stockmarket, as investors look forward to a civilian lead government. Any indication of the military regime delaying the election could result in another round of civil unrest. The non-military elites don’t want to see this, so will be pushing for compliance with the “road map”.
In Myanmar, as diplomatic pressure mounted on the government to redress the Rakhine situation, Myanmar signed an MOU with Bangladesh for the safe repatriation of Muslim refugees; but one doubts whether many of them will return. Internationally, Daw Suu Kyi’s heroic image has been badly damaged, whilst domestically the Army Chief Gen. Min Aung Hliang has boosted his popularity with hardcore “Buddhists”.
As we had hoped, the peace-keeping setbacks in Rakhine have resulted in economic policies being given a higher priority. The new Companies Act was passed in the current Parliamentary session, allowing the stock market and OTC markets to invite foreign participation in the New Year. We intend to be an actively involved. Additionally, the State Councillor’s trip to China this week may result in the finalisation of the Kunming –Mandalay-Naypidaw railway as well as other Chinese FDI. Also, the Central Bank has extended the deadline for Myanmar banks to recognize NPLs and recapitalize, which we expect will soon lead to a rash of foreign tie ups following the implementation of the new Companies Act.
In Cambodia, the dissolution of the opposition CNRP by the Supreme Court (on the basis of hatching a treasonous plot with the Americans, assures Hun Sen another term in office. Whilst perhaps not a healthy political evolution, it does ensure that Cambodia’s economic policies will remain similar, and their close alliance with China also continue. We intend to progress the public listing of BRM Agro in Thailand or Singapore next year.
In the resource sector Saudi Arabia needs to engineer a buoyant oil price ahead of the ARAMCO listing, and to maintain government popularity during the “Purge”, OPEC just agreed to maintain supply cuts through to March.We are also optimistic for the gold sector, where we are holding Newcrest, Zijin Mining and Turquoise Hill. 2018 may be the year when speculators finally drive the gold price back to $2,000 per ounce.
As a special situation we hold Kingsgate, which is claiming US$ 200 million political risk insurance claim, and applying to restart its mining operations post lifting of suspension. Based on a PE of 10x profits of US$ 30 million per annum, or a conservative SOTP, the stock should trade closer to A$ 2 per share, from A$0.40 currently.