Amidst an uneven recovery, RHB Group Research economists Andrey Wijaya, Michael Setjoadi, Alexander Chia, Shekhar Jaiswal and Kasamapon Hamnilrat see opportunities abound among Asean economies in 2021.
Domestic consumption plays, which are a common theme across the region, should lead the recovery, says the team in a Jan 8 market strategy report.
“Continuing government support, a normalisation of business activities, improving consumer and business confidence and an enduring low interest rate environment should support an improvement in private consumption across Asean in 1H2021,” they write.
The availability of the Covid-19 vaccine should cement the recovery in 2H2021, they add.
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To this end, “banks, infrastructure, land transport operators and selective food and beverage and retail names are preferred plays, while the aviation, real estate, tourism and hospitality sectors, will start witnessing earnings recovery toward end-2021.”
The team also predict more domestic stimulus from the Asean governments.
“We have seen various fiscal stimulus packages being implemented in 2020 to cushion the impact of the pandemic on the economy,” they note.
“Under the recent fiscal and lending schemes, the total stimulus packages that were introduced in South-East Asia saw Malaysia’s reaching 20.2% of GDP, close to Singapore’s 19.9%, followed by Thailand’s 14.2% and 5.1% by Indonesia – less than the European countries, but higher than North Asian countries,” they add.
The team also estimate that foreign portfolios could return to the region due to the current volatility in US politics and positive vaccine news, with Indonesia, Thailand and Singapore likely to be taking the lion’s share of inflows.
“Foreign portfolio funds have predictably exited Asean equity markets in droves in 2020 as the pandemic hit, fleeing back to the relative safety of developed markets,” they say.
“Malaysia’s relative outperformance in 2020 means it may not be the first port of call for foreign portfolio funds,” they add.
Moving forward, the team also sees a mixed trend when it comes to working from home.
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“We believe the potential for work-from-home (WFH) [practices] will vary across countries – a reflection of their sector, occupation, and activity mix. In Asean, Malaysia, Indonesia, Singapore and Thailand, we see that industries such as agriculture, retail services, accommodation, construction, and food services cannot be 100% done remotely,” they say.
The Regional Comprehensive Economic Partnership (RCEP) would eliminate up to 90% of import tariffs over the next 20 years and establish common rules for e-commerce, trade and intellectual property, which should reduce export costs in the region.
“Less-developed countries are likely to benefit from investments and the transfer of technology from more-developed countries. RCEP is world largest trading bloc, with members accounting for about 30% of the world's population and some 30% of global GDP,” they note.
On their stock picks for the region, the team has given Singapore-listed companies CapitaLand, DBS and Singapore Technologies Engineering (ST Engineering) “buy” calls with target prices of $3.75, $30 and $4.40.
Shares in CapitaLand, DBS and ST Engineering closed at $3.41, $27.42 and $3.93 respectively on Jan 8.
