ASEAN’s economic recovery will accelerate in early 2022 as vaccination climbs to critical thresholds for safe reopening, with significant upsides supported by attractive valuations and favourable structural dynamics such as supply chain relocation due to US-China tensions.
“This year, global economic recovery is providing a cushion against downside risk from weak domestic demand. But next year, even as global economic growth will moderate from this year’s, we do expect domestic demand to play a much bigger role in supporting ASEAN’s growth,” said Suhaimi Ilias, Chief Economist, Maybank Investment Bank.
The pandemic has not derailed this structural shift. ”In Malaysia, political uncertainty poses downside risks as investors adopt a wait-and-see attitude ahead of Parliament reconvening in September, according to Suhaimi. The biggest risk right now from an economic perspective is what will happen to Budget 2022.
Failing to table Budget 2022 will be a dampener on the recovery process because fiscal policy would be supportive of growth. We won’t have things like tax incentives to spur investment and we may not get extensions on the current incentives to spur home-buying and auto purchases. There also won’t be spending on big ticket items or incentives to boost tourism as vaccination progress leads to opening of domestic travel,” Suhaimi said. The budget for the coming year must be tabled, debated and passed by Parliament before the end of current year. If not passed due to insufficient time, Section 102(a) of the Federal Constitution allows for Parliament to approve a partial budget to ensure the obligations like pensions and servicing of Government debts are taken care of.
On the Malaysia equity market, rapidly rising vaccination rates should allow investors to refocus on equities-supportive positives of accelerated earnings recovery, continued albeit moderated fiscal and monetary support, ample liquidity, commodities price recovery and relative attraction versus fixed income into 4Q21. The position investors should have is a balanced portfolio positioning, with a heavy emphasis on cash yield. Preferred sectors are mid-cap financials, large-cap oil & gas, technology, auto and plantations, with some top picks being RHB, MISC, Inari, BPlant and Yinson.
While some measure of convergence is expected for ASEAN markets over 2H21, the performance gap between outperforming markets like Singapore and Vietnam and underperforming markets like Malaysia and the Philippines is expected to remain significant. Notwithstanding pandemic headwinds, the Kim Eng still forecasting a broad earnings recovery across the region in 2021, in the 20-30% year-on-year range.