• Expect market swings in 2022 as sentiment gyrates between recovery optimism vs timing and pace of rate hikes; and COVID uncertainties
  • Positive on Singapore, Hong Kong and Thailand; Neutral on Indonesia and Cautious on Malaysia 
  • Themes: Tighter monetary policy, living with COVID, structural changes, sustained oil demand

Mood swings ahead.Expect regional market swings as sentiment gyrates between recovery optimism versus uncertainty over timing and pace of rate hikes. Investors will have to contend with uncertainties over near-term unknowns about Omicron that can swing either way, rising inflation, pace of rate hikes, China policy risks and geopolitical tensions.

Positive on Singapore, Hong Kong, Thailand.Singapore and Thailand should outperform as growth accelerates on border reopening. The Hong Kong market offers good risk-reward as uncertainties over Evergrande and regulatory risks are largely priced in. We are Neutral on Indonesia due to its lower vaccination rate and rising interest rates, underweight  Malaysia with the one-off prosperity tax and uncertainty over a possible general election.

Tighter monetary policy. Technology and financials outperformed in the last taper and rate hike cycle. We see a similar trend in 2022 as technology benefits from structural demand while banks gain from both better NIM and rising net interest income. Picks are UOB SPAEM SPUMS SP11 HK2388 HKTOP TBBBRI IJVSI MK

Living with COVID uncertainties. If reopening is a 2-step forward, 1 step back process, the best time to position into this theme is during that step back. Near term uncertainties over Omicron will add pressure on re-opening plays. That said, reopening is an inevitable process in the longer run that will continue to unfold as global vaccination rate improves, even if unexpected obstacles may slow down its process.  Our picks are SATS SP, ART SP, SUN SP, CD SP, 116 HK, 590 HK, 178 HK, AOT TB, BDMS TB, HMPRO TB, PWON IJ, MAPI IJ, JPFA IJ, SENTRAL MK and GAM MK.

Sustainability drive and structural changes.ESG continues to grow in importance with renewables being key beneficiaries. Picks are SCI SPSTE SP6865 HK2208 HK1211 HK, and INCO IJ. Digital transformation will remain in focus as the increased adoption of 5G, IoT, AI, EVs, and AVs continues to drive the structural trends in the technology sector. We pick UMS SPSVI TBT MK and TDC MK.

Oil sector in hot spot. We believe NOCs will reinvest in oil exploration and equipment in 2022, amid sector under-investment and improving oil demand. Besides upstream players, asset owners and oil service providers should see earnings recover. Picks are KEP SP, 883 HK, 857 HK, 386 HK, TOP TB, PTTEP TB, MEDC IJ.