The delta has hit an alpha in Asean, analysts at RHB Research Securities say in reference to the new wave of the delta variant.
Delays in the access to Covid-19 vaccines may see Asean economies “approaching the endgame with inoculation rates rising sharply in recent months,” chime economists from CGS-CIMB.
“The path towards recovery clearly lies in a quick and efficient immunisation programme, coupled with an effective public relations outreach to convince large pockets of the population to voluntarily register for vaccines, and strike a cautious balance between lockdown and re-opening,” stress RHB analysts Alexander Chia, Andrey Wijaya, Kasamapon Hamnilrat and Shekhar Jaiswal.
They add that countries with advanced vaccination progress such as the US and UK have seen sharp declines in daily transmission rates, thereby allowing for herd immunity and the return to normalcy in their economies and corporate’s earnings.
So far, Malaysia and Singapore are looking to have at least 50% of their population full-vaccinated by end-August and end-September respectively. This creates “a window to begin wider normalisation of economic activity in the near term,” note CGS-CIMB’s economists Michelle Chia, Lim Yee Ping and Terence Lee.
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However, delays are expected in the re-opening of Indonesia and Thailand due to supply constraints in vaccines. The economists reckon that reopening in Indonesia may only come in 4Q2021 while that in Thailand will be in 1Q2022.
Looking ahead, they are expecting Singapore’s GDP to grow at 6.6% in 2021 and 4.3% in 2022. Malaysia’s GDP growth is expected to come in at 3.9% in 2022, a downgrade from their previous 4.4% prediction amid expectations of the Phase 1 and 2 MCO restrictions being in place till August.
Meanwhile, CGS-CIMB’s economists have cut Indonesia’s GDP growth to 3.5% in 2021 and are keeping their outlook for Thailand at 1.6% having factored in a sluggish inoculation rollout and tourism-oriented activities remaining subdued.
Against this backdrop, RHB’s Chia, Wijaya, Hamnilrat and Jaiswal say that the equities will remain volatile in the short term. This is despite there being “enough ingredients on the table to remain constructive on the outlook for equities as we remain in the embryonic stages of a new growth cycle”.
Even so, the analysts caution that a “recovery scenario” has already been priced in.
“The prospects of a tighter liquidity environment and underlying political risks will compel continued exposure to defensive names and higher cash holdings,” they elaborate.
What this means is that there will be a need for stock-picking strategies and trading to capitalise on momentum and high beta names to generate alpha.
Singapore’s Straits Times Index (STI) is slated to outperform its Asean peers and “move higher” with greater clarity on the eventual reopening of the country, observe RHB’s Chia, Wijaya, Hamnilrat and Jaiswal.
“We remain positive on Singapore equities and continue recommending a balanced investment strategy – with higher exposure to economic recovery/reopening plays, which will be balanced with high-yield and defensive stocks,” the add.
The analysts have raised their end-2021 STI target to 3,410 points from their previous 3,280-point forecast on the basis of forward P/E (price-to-earnings) being unchanged at 14.5x.
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While a recovery may be on the cards, CGS-CIMB’s economists raise the possibility of a deterioration in the Covid-19 pathology causing more virulent strains to emerge. They add that the virus may also develop a resistance to existing vaccines or treatments, which would require a reversal to the current movement restrictions.
Aside from this, the economists highlight that economic scarring via slow labour market normalisation and supply chain disruptions as well as a premature withdrawal of support measures will hit both corporates and households severely.
