Asean market to enjoy strong cyclical upturns in 2022: Credit Suisse

THE Asean market is the top pick to enjoy strong cyclical upturns in 2022 due to cheap multiples, low foreign ownership and bounce-back earnings, according to a Nov 29 report by Credit Suisse.

The analysts, Dan Fineman and Kin Nang Chik, called Asean their "favourite" as the region ranks highly in terms of cyclicality and valuations, with the highest conviction "overweight" rating.

The Asean market is expected to experience "rapid post-pandemic normalisation growth ahead of them", and the analysts favour it over markets that have already become normalised in 2020, namely China and Taiwan.

In a ranking of the best outperformers by market, market analysts chose banks as the top picks for most Asean countries. The banking sector is expected to gain from inflationary pressures, a steeper yield curve, cheap multiples and a turn in earnings per share (EPS) momentum.

Although vaccination rates are lagging behind in Asean (except for Singapore and Malaysia), proportions of the population with antibodies developed from either the vaccine or infection are still relatively higher than American and European vaccination rates. The analysts believe that Asean populations have a higher resistance to Covid-19 than commonly supposed.

In the broader Asia-Pacific market, Asean markets hold the top 4 spots in terms of valuation in the following order: Malaysia, Indonesia, Singapore and the Philippines. Even though the region took a harder hit from the pandemic, these 4 countries are expected to see a growth in both gross domestic product and EPS.

"Asean's recovery will be a bit gradual, but this likely means it would have healthy year-on-year numbers for 2 years rather than 1," said the analysts.

Indonesia is the analysts' most favoured Asean economy because of its strong demographics, low e-commerce and credit penetrations and reforms to labour markets and investment approval processes. They expect the country to see improved EPS revision momentum and a stronger rupiah.

The analysts have called Singapore an "inflation winner" due to its high sensitivity to inflation, partly due to the city state's currency mechanism, where the central bank allows the currency to appreciate in the event of rising inflation in Singapore, so as to keep imported inflation under control. Their country "overweight" rating is also based on improving EPS revisions and leverage to rising inflation expectations.

According to the report, Malaysia has strong currency potential, but lacks the structural potential compared to Indonesia and the Philippines. On the other hand, the peso is expected to lag regionally. However, the analysts like the Philippines for its strong demographics, low credit and consumer segment penetration and cyclical recovery from the pandemic.

Thailand is the only Asean economy not to be labelled "overweight". Its "market weight" rating derives from the baht's weak performance. This can be attributed to the current account's plunge from the collapse of international tourism and a jump in oil prices. Nevertheless, the analysts expect the baht to rake in returns in 2022.

Overall, the analysts expect 8 per cent index returns for the Asia-Pacific region next year.

READ MORE:

• Indonesia central bank keeps rates steady to support recovery from pandemic
• Economists expect Singapore to make strong recovery in 2021/22 despite pandemic resurgence risks
• Most Asean economies to see faster GDP growth