By Kok Fook Meng and Soh Chih Kai, Milltrust ASEAN Fund, Oct 2017

ASEAN economies should still see decent growth in the next few quarters on the back of exports (Thailand, Singapore, Malaysia), infrastructure spending (Indonesia, Malaysia, Philippines, Thailand), potentially higher consumption (Indonesia, Thailand, Malaysia) and government spending (Malaysia, Indonesia, Thailand). However, inflation could see an uptick in 2018 on a low base in 2017. Coupled with a potentially stronger USD next year, ASEAN economies could face some macro headwinds, although they should be manageable.

In terms of sectors, we have maintained our relative sector weights which are mainly the result of our bottom up stock selections process. We are still overweight the Financials sector which should continue to benefit from the bottoming credit cycle and potential emergence of a loans growth cycle. We still like the infrastructure sector, with selective picks in the construction and cement sectors. We have also retained our overweight in consumer discretionary, downstream energy, petrochemicals and telecommunications sectors.

Valuations are still more demanding compared to the start of the year, but could moderate if the potential upside surprises highlighted above materialize in 2018. In the medium to longer term, we remain positive on the prospects for the ASEAN region on its attractive demographic profile and its low and rising per capita GDP that supports consumption growth, and also its attractiveness to foreign direct investments.