Indonesia, India funds top Asian returns in 2004

Mutual fund investors in Southeast Asia's largest economy, Indonesia averaged 34%, the best in Asia, followed by those in India and Philippines, where the mean was 27%, according to a survey.

If you were a mutual fund investor in Indonesia last year, your holding may well have swelled by a third, but analysts say that you will have to look elsewhere for similar returns in 2005.

HT Image

Mutual fund investors in Southeast Asia's largest economy averaged 34 per cent, the best in Asia, followed by those in India and Philippines, where the mean was 27 per cent, according to data from fund tracking firm Lipper, a Reuters company.

But in the current year analysts expect Indonesian returns to lag those in the Philippines and India as their improving economies support corporate earnings growth.

"In Indonesia it will be a bit difficult to repeat last year's performance," said head of Asian equity investments at ING Investment Management, Bratin Sanyal.

He expected no positive surprises from President Susilo Bambang Yudhoyono.

"It is now 'show me' time. Not much has been achieved since he came to power," he said.

Yudhoyono won a big mandate in the country's first ever direct presidential elections last year on promises to create more jobs by stamping out graft, cutting red tape and fixing the country's decrepit infrastructure.

Rating agencies also acknowledged Indonesia's improving financial profile with rating upgrades.

That spurred Indonesia to become the best performer among Asian stock markets in 2004, with the Jakarta stock exchange's main index rising 44.6 per cent. The market reached a new intra-day high of 1,057.3 on Wednesday, up 5.7 per cent on the 2004 close.

Although Asian stock markets recorded a second consecutive strong year, with the MSCI Asia-Pacific ex-Japan index rising 19 per cent to a near five year high, bourses in China and Thailand ended the year lower.

That translated into poor mutual fund returns. Lipper data showed funds focused on Thailand and China had given the poorest returns in 2005.

Thailand funds averaged a return of minus 1.7 per cent, the only negative average fund performance among the 15 Asian geographic sectors tracked by Lipper, while China and Greater China funds returned 3.9 per cent and 6.8 per cent, respectively.

And analysts say that, despite its fast-growing economy, China's stock market may not outperform because of regulatory risks, dominance of state-run companies and fear of overcapacity in certain sectors.

Singapore-based fund manager at Aberdeen Asset Management Peter Hames said that while the Chinese economy was growing faster than the Indian economy, the latter offered more well-run listed companies.

In 2004 overseas portfolio investors pumped in a record $8.5 billion into shares in India, helping the index rise to a then life high 56.5 per cent above a mid-year low struck after the surprise election of a communist-backed government.

And while the jury was still out on the technology sector, some said there were many other reasons to like Taiwan, whose mutual fund industry returned a modest 7.4 per cent.

"Ties with China are improving, the MSCI re-weightings are coming and the new accounting rules will make Taiwan stocks more transparent," said fund manager at Target Asset Management Teng Ngiek Lian.

Taiwan, Singapore and the European Union countries are requiring companies to progressively adopt International Financial Reporting Standards, a report from Ernst & Young said.

Under these new rules, debt and equity options in a convertible are accounted for separately, removing an accounting advantage that convertibles had previously enjoyed.

More than half of Asia's convertible issuances in 2004 were from Taiwan.