We have updated the file today (8 July 2022) @7.30am to reflect changes to the Regional market Valuation table on page 9.
- Hong Kong/China better prepared to face uncertainties
- Positive on Hong Kong & Singapore, Neutral Indonesia & Philippines, Negative Thailand
- Common themes – Rate hike beneficiaries, reopening and earnings resilience
More mood swings ahead Expect more market volatility with investors affixed on high frequency inflation/growth data and corporate earnings uncertainty. Odds of a US recession could rise to 30% by year-end with Philippines and Thailand most affected by the slowdown. The good news is there are signs of inflation peaking although the pace of decline will be gradual. One silver lining from this inflation predicament is possible easing of US-China trade tensions.
HK/CN better prepared to face uncertainties Inflation remains benign for HK/CN while monetary and fiscal policies have turned supportive of growth. Equity market valuations are attractive after a year-long bear market. Any easing of US-China trade tensions is an added catalyst. The unknown is when will China step away from its zero-COVID policy. ASEAN-5 has to contend with elevated inflation and policy tightening at a time when external drivers are slowing. The challenge for ASEAN central banks is to find the right balance between tightening to fight inflation versus doing so too early or quickly that it stifles economic recovery. The upside for ASEAN is synchronized reopening of borders
Positive on HK and SG The Hong Kong market’s valuation is attractive with good risk reward. The market remains under-owned, and can be reversed with more supportive government policies. Forward PE is low at <10x despite double-digit EPS growth. Our year end HSI target is 23,800. Singapore is a haven in uncertain times. Broadening recovery in its services sector offsets the slowdown in manufacturing. Labour market is strong with unemployment at just 2.2%. Singapore market offers attractive yield of 4.1/4.5% for FY22F/FY23F. Index trades at 11.7x (-1.5SD) 12-mth fwd PE. Our STI end-2022 target is lowered to 3,430 (prev. 3,550)
Neutral on ID and PH, Negative on THIndonesia’s 2H22 outlook can be supported by higher commodity prices and broader re-opening. But watch the widening interest rate differential with the US. Other risks are a sharp correction in commodity prices and foreign funds outflow (after strong inflows in 1H22). Our end-2022 JCI index target is 7,500. Philippines may deliver strong 2022F GDP growth but inflation is a concern. BSP’s inflation forecast is 5.0%/4.2% for 22F/23F. Sustained CPI readings above 5% is a risk. Our year-end target for PSEi is 7,300. Thailand’s economic recovery has lagged the region. While tourism recovery is a key growth driver, exports should continue to slow as the US economy cools. Surging inflation has led the Bank of Thailand to finally turn hawkish after the country’s May CPI rose a worrying 7.1% y-o-y. Our end-2022 SET Index target is lowered to 1680
Common themes across the region. (1) Rate hike beneficiaries – AIA, Bank of China, UOB, Bank Rakyat BDO Unibank, KASIKORNBANK. (2) Reopening – Singapore Airlines, CDL Hospitality Trusts, Frasers Centrepoint Trust, CapitaLand Integrated Commercial Trust, Airports of Thailand, Minor International, Bangkok Expressway and Metro PCL, Pakuwon Jati, SM Prime Holding. (3) Earnings resilience – China Mengniu, Link REIT, Sheng Siong Group, ComfortDelgro, ST Engineering, PT Sarana Menara Nusantara, Jollibee Foods Corp.