South-east Asia headed for equities, earnings recovery, but economic growth is patchy

SOUTH-EAST Asian equity markets are headed for a "broad earnings recovery" year on year in 2021.

But the economic trajectory looks a little patchier, as Maybank Kim Eng analysts projected an economic pickup only in late 2021 and early 2022, on a vaccine-supported reopening, according to reports on Thursday.

To be sure, Anand Pathmakanthan, head of regional equity research, has tipped "significant upsides for most Asean markets", as factors such as tax cuts in Indonesia and the Philippines, as well as supply chain shifts, could generate double-digit upsides for benchmark indices.

He was bullish on regional financial counters, and added: "Other notable preferences are yield and tech companies in Singapore and Malaysia, the consumer and property sectors in the large domestic markets of Indonesia and the Philippines, energy and cyclical stocks in Thailand, and logistics and infrastructure plays in Vietnam."

Coming off last year's low base, regional corporate earnings could recover by 30 per cent to 50 per cent year on year, he estimated.

Still, Maybank Kim Eng warned of continued underperformance in some markets, on the back of challenges such as political uncertainties in Malaysia and pandemic-related border closures in Thailand, where the economy is heavily dependent on tourism.

"The underperforming markets, led by the lockdown-tormented Philippines, are being squeezed by resurgent Covid infection rates," said Mr Pathmakanthan.

He pointed to "economically-damaging movement restrictions" and "an apparent exhaustion of fiscal and monetary firepower" as key risks.

Along those lines, macro research co-heads Suhaimi Ilias and Chua Hak Bin stressed that Asean economies face "uneven K-shaped growth recovery" too.

While demand for South-east Asian manufacturing and exports has been sustained by the reopenings in China, Europe and the United States, the analysts noted that hospitality, retail, recreation and aviation have dragged down the services industries.

"A stronger services recovery will only materialise when border controls and social distancing requirements can be substantially relaxed, a prospect that looks increasingly remote this year," they wrote.