SGX ASEAN Plays Poised to Gain from China's Belt & Road Initiative (OBOR)

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22 September 2017

Market Updates

ASEAN Plays Poised to Gain from China's Belt & Road Initiative (OBOR)

• With its geographical proximity and relatively low risk profile, ASEAN is expected to be a key beneficiary and bridgehead of OBOR as it sees more infrastructure developments and improvements, as well as increased trade and regional connectivity in the region.

• Singapore, being a member state of ASEAN, has significant roles to play in the OBOR initiative through its status as a financial hub. In addition, Singapore has established industries with the expertise to drive and support infrastructure development for OBOR in ASEAN.

• SGX lists 192 stocks (c.25%) with at least 20% of their revenue generated from ASEAN across the GICS® Industrials, Materials, and Utilities Sectors. Of the 20 largest capitalised stocks, 13 saw positive YTD price returns. The five best-performing stocks were Jardine Strategic (+25.5%), Straits Trading (+25.1%), Riverstone Holdings (+18.7%), SBS Transit (+17.9%) and Keppel Infrastructure Trust (+16.8%).

First unveiled in 2013, China’s One Belt and One Road (OBOR) initiative refers to China’s Silk Road Economic Belt and 21st Century Maritime Silk Road development strategy focusing on connectivity and economic co-operation across Asia, Africa and Europe (click here for more).

ASEAN – A Key Beneficiary of OBOR

OBOR is expected to bring many benefits to ASEAN as increased Chinese capital flows through via infrastructure projects spanning ports, roads, railways and energy sectors. According to a Straits Times article, Maybank Kim Eng noted that ASEAN was the greatest beneficiary of Chinese greenfield investments from 2003-2015. Specifically, China’s non-financial direct investment into ASEAN rose to US$14.5 billion in 2015 (against US$12.5 billion in 2014).

A recent report by RHB Securities also stated that ASEAN will likely become the bridgehead for OBOR due to the region’s geographical proximity and relatively low risk profile. Apart from infrastructure investments, OBOR may also have an impact on other sectors: 1) primarily industrials, materials, utilities and 2) indirectly, finance, consumer, healthcare and tourism in the ASEAN region.

OBOR’s potential impact on ASEAN include:

• Infrastructure development and improvements – A United Nations Conference on Trade and Development’s (UNCTAD) report estimates that ASEAN needs US$60-146 billion a year on infrastructure investment between 2015 and 2025. Leveraging on OBOR’s vision, ASEAN countries are expected to see more joint infrastructure developments across the region such as the Sino-Laos and Sino-Thai railway projects, which complement the AEC Blueprint 2025 vision of integrating ASEAN into the global economy while maintaining its central role in East Asian regional cooperation.
• Increased trade and regional connectivity – According to the Chinese Ministry of Commerce, trade between China and countries along OBOR has increased by 26.2% in the first three months of 2017. China expects annual trade with these countries to be worth over US$2.5 trillion by 2025 and beyond. ASEAN, given its strategic location along OBOR, will be positioned to benefit from an increase in trade activity.

OBOR Opportunities for Singapore’s Industrials, Materials and Utilities Sectors

Singapore, being a member state of ASEAN, has significant roles to play in the OBOR initiative through its status as a financial hub for China and ASEAN. In addition, Singapore has several established industries with the experience and expertise to drive and support infrastructure development for OBOR in ASEAN, within sectors such as industrials, materials and utilities.

Prime Minister Lee Hsien Loong’s official visit to China this week further demonstrates both countries’ plans for bilateral cooperation as part of the OBOR initiative. According to The Straits Times, both leaders highlighted the potential of the Chongqing Connectivity Initiative and the Southern Transport Corridor to play important roles in supporting OBOR, and reaffirmed the three platforms under OBOR, namely infrastructural connectivity, financial connectivity and support, and third-country collaboration which includes joint training for officials from OBOR countries.

SGX’s 20 Largest Industrials, Materials and Utilities Plays with ASEAN Exposure

SGX lists 192 stocks (c.25% of overall market) categorised by GICS® under the Industrials, Materials, and Utilities Sectors with at least 20% of their revenue generated from ASEAN. These stocks may provide investors opportunities to invest in companies with ASEAN exposure across industries such as construction & engineering, metals & mining, and trading & distribution.

The 20 largest capitalised Industrials, Materials, and Utilities stocks with ASEAN exposure have generated an average market capitalisation-weighted price return of 13% in the year-to-date, with 13 out of 20 generating positive price returns. The 20 companies trade at a market capitalisation-weighted average P/E of 9.0x and P/B of 1.1x.

The 20 stocks are listed in the table below. Click on each stock to visit its profile page on SGX StockFacts.

Source: Bloomberg & SGX StockFacts (data as of 21 September 2017).

*Note from IPO price ** HRnetGroup was listed in Jun 2017

Did You Know?

SGX is one of Asia’s most international exchanges globally, with nearly 40% of its listed companies from overseas. SGX lists over 110 Chinese companies and 250 bond issuances from China, it is also the only exchange outside China to offer futures for exposure to China’s 50 largest companies through the SGX FTSE China A50 Index Futures. In 2013, the People’s Bank of China appointed the ICBC Singapore branch as the Renminbi clearing bank in Singapore, making the city-state a regional gateway for Renminbi payments (click here to read more).

Previous Market Updates on China-Focused Plays

• 15 September 2017: 20 Largest China Plays returned 27% in the YTD – Click here
• 19 September 2017: China-Focused Materials Stocks Led Sector’s YTD Gains – Click here

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