DBS sees boost to regional stocks on Asean festivities without restrictions

DBS Group Research encouraged investors to pivot to companies with resilient earnings that will benefit from the global reopening and festivities – particularly Asean consumer staple and discretionary stocks. 

This comes amid an environment of rising prices and rates, as governments worldwide lift domestic and international Covid-19 restrictions in time for the festival season.​

On Thursday (Jan 12), DBS analysts noted that consumer staple and consumer discretionary stocks have “generally fared well” even as prices and rates rose in 2022. This is because the former is deemed a defensive sector and the latter is seen as a beneficiary of the reopening. 

The analysts were optimistic about the release of pent-up demand, with restrictions eased for festivals and celebrations across the region. They also expect a pre-election domestic boost for Thailand and Indonesia.

The research house said there is potential for significant “revenge spending” during the upcoming festive season as restrictions are relaxed in many countries, including those in South-east Asia, for the first time in three years. 

In DBS’ view, consumer sub-sectors such as alcoholic beverages, restaurants and groceries should see elevated demand, led by festivals including Chinese New Year, Songkran and Lebaran.

Meanwhile, analysts anticipate that the election fever in Thailand and Indonesia will have a positive play on consumer counters listed in these countries.  

While they expect the softening of expansionary trends in Asean economies from the lifting of Covid restrictions, the analysts said a remnant reopening boost will still help, as visitor arrivals remain significantly below 2019 levels. 

However, they highlighted that the second half of 2023 remains uncertain, with a potential slowdown. In their view, highly trade-dependent economies, especially Singapore, Vietnam and Thailand, are likely to be more impacted. 

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DBS also said the complete reopening of China in a best-case scenario would serve as a further tailwind for Asean economies. China’s border relaxation could set off a wave of “revenge travel” as the near-term concerns should ease, they added.

In all, the research house projected headline inflation to average lower in most of Asean in 2023, save for Singapore and Vietnam. 

“As the festive mood wears off, consumers would become more cost-conscious on the back of the high inflationary environment seen, which may put a dent in consumer sentiment and demand,” said DBS analysts.

They, however, flagged potential for companies to see an ease in margin pressure as costs moderate or decline from a high base in 2022, given the delayed impact.