ASEAN Safe-Haven Status with Indonesia as Top Pick: RHB Research

In the latest Regional Strategy report by the research house dated April 21, 2022, the analyst holds on to a cautious optimism on ASEAN markets.

2Q22 ASEAN strategy: The pace of economic normalisation in ASEAN is on track. Regional equities are enjoying safe-haven demand on the back of the Ukraine crisis. Further out, geopolitics, global inflation, tightening liquidity and supply chain challenges will offer a stern test to the sustainability of global growth. Indonesia is our top country pick in the region.

Indonesia. The research house sees further potential upside for the JCI, after it recorded a robust performance (+9.9% YTD), as the multiplier effect of high commodity prices should boost consumer spending in 2Q22F. It recommends a rotation on cyclical sectors, with banks > retail > automobile > real estate as their pecking order. The house also likes metal mining due to the expected robust demand for nickel. Bank loans growth accelerated in February – despite it being the peak of the third wave of COVID-19 infections – from increased economic activities and high commodity prices.

Key risks: Inflation may accelerate, but should be manageable, in their view.

Malaysia. The recovery continues apace, culminating in the relaxation of border restrictions on 1 Apr. The research house remains in the nascent stage of a new growth cycle, but geopolitical risks are clouding the outlook, adding to global inflationary pressures. A more aggressive-than-expected US Fed and the escalation of the Ukraine conflict are key risks, on top of fragile domestic public finances, policy and regulatory worries, and an evolving political backdrop. The investment strategy will centre on trading angles, a core defensive posture with opportunities in the small-mid cap space.

Singapore. For 2Q22, Singapore’s equity market outlook will continue to depend on how well stocks and sectors deal with: i) Uncertainty over the inflation outlook; ii) supply chain disruptions because of the Russia-Ukraine war and China’s zero COVID-19 strategy; and iii) general caution ahead of the size of the rate hike at the May Federal Open Market Committee (FOMC) meeting. On the positive front, Singapore is now open for business and tourism, and its government has assured that it plans to keep the economy open even if there is a spike in COVID-19 cases. The research house recommends a barbell portfolio, with a mix of growth and defensive stocks.

Thailand. Thailand’s economy will fully resume normalcy from 1 Jul onwards, as its government aims to classify the COVID-19 status as endemic then. Meanwhile, extensive economic sanctions on Russia may
create headwinds for certain sectors, and this may lead to spill-over effects on other industries, eg production costs overshooting projections – although this may take some time to assess. Based on their 4.5% YoY earnings growth projection for the SET this year, with a scenario analysis applied over it, their end-year SET target would be: i) 1,731 points, if current conflicts do not escalate over the next 3-6 months; or ii) 1,888 points, if these issues are resolved in 4Q22. For the full year, the research house continues to recommend investors to accumulate, and favour domestic plays, defensive stocks, and those offering sturdier dividend yields.

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