Unilever Says Go Long as Currencies Extend Rally: Southeast Asia
Unilever (ULVR), the seller of Lipton tea and Dove shampoo, expects Southeast Asia’s currencies to strengthen further against the U.S. dollar and euro in the next few years as foreign investment boosts economic growth.
“I would go long on the currencies in Southeast Asia,” Peter Ter-Kulve, the London- and Rotterdam-based company’s chief executive officer for Southeast Asia, said in an interview on May 10. “Most of the monetary policies are very robust at the moment and the currencies are a testament to the fundamental strength of the economies we are in.”
Unilever uses a so-called “natural hedge” against currency swings by sourcing and producing products in local markets, he said.
Southeast Asia’s currencies are among the best performers in Asia this year, led by the Thai baht and Malaysian ringgit. Growth in Southeast Asian nations may average 5.4 percent this year, and quicken to 5.7 percent in 2014, according to the Asian Development Bank, which predicts a 1 percent expansion in advanced economies this year.
Southeast Asian currencies may face pressure from overseas inflows amid quantitative easing from major central banks, according to Enrico Tanuwidjaja, a Singapore-based economist at Royal Bank of Scotland Group Plc.
“But it’s not going to be a one-way street for all of them because it’s going to be treated differently,” Tanuwidjaja said in a May 10 phone interview. “One thing that is positive is that regional central banks are more savvy, they are more prepared and they have a lot more policy tools. That’s a common thread among Southeast Asian countries and it’s a very good sign.”
Thai Finance Minister Kittiratt Na-Ranong said on May 10 the central bank should cut the key interest rate by more than a quarter of a percentage point or implement capital controls to stem the baht’s rise.
Ter-Kulve is especially confident about Unilever’s prospects for Indonesia, calling it the “big gorilla.” Sales at its publicly traded company in the region’s biggest economy reached 1 billion euros ($1.3 billion) after 80 years, and took only four years to double to 2 billion euros.
Indonesia’s economy expanded 6.2 percent last year, with growth forecast to increase to 6.6 percent in 2015, according to a Bloomberg survey of 24 economists.
“I have a lot of confidence that the next 20 years will be the Indonesia decennium,” Ter-Kulve, 48, said. “At a certain point you can’t stop the flying wheel any more. Too many people are turning into the middle class.”
Still, he expects short-term stumbling blocks for the region, such as Indonesia’s elections next year.
The ruling Democrat Party chose the country’s president, Susilo Bambang Yudhoyono, as chairman ahead of national elections next year amid jockeying among possible replacements that could stall spending on roads and ports. He was elected March 30 at an extraordinary congress in Bali to succeed Anas Urbaningrum, who resigned after becoming at least the third senior party official linked to corruption allegations in less than two years.
He’s also concerned about the increase in the price of some food products. The cost of whole milk powder has surged about 90 percent this year through the end of April as a drought in New Zealand curbed milk collection and the cost of orange juice has climbed 19 percent since January.
“There is a lot of volatility in the market, but we are able to deal with it,” he said in a Bloomberg Television interview with Haslinda Amin, adding that Unilever is hedged against price rises for the “next three to six months” before passing it on to consumers.
Unilever will also focus on opportunities in new markets in Southeast Asia, such as Myanmar, which he said could be “another Vietnam” in 20 years. The company is already selling its products through 100,000 outlets in the country, he said.
Emerging markets made up more than half of Unilever’s revenue in 2012, it said in its annual report. They offered “double-digit” growth in countries including Indonesia and Vietnam, he said.
Ter-Kulve, who called Ben & Jerry’s ice-cream his favorite Unilever product, plans to promote the brand with outlets in Southeast Asian capital cities similar to those in Singapore, declining to elaborate on the timeframe.
“Economies are growing and incomes are rising,” he said, adding that “the political situation is stable compared to other parts of the world.”
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