• Macroeconomic indicators flashing positive for equities. RHB believes the monetary tightening cycle is close to peaking, with the terminal US Federal Funds Rate (FFR) forecasted to peak at 5.00-5.25% in 2023. The US is expected to avoid a deep recession, with growth resuming in 2H23. Recent data suggests that inflation has already crested. China’s re-opening continues apace, which bodes well for global growth in 2H. Our preferred regional market is Thailand, on the pent-up demand for travel and tourist arrivals from China.

• Indonesia. The JCI is likely to remain highly volatile, amidst expectations of a further weakening of the IDR and negative sentiment from global recession fears in 1Q23. However, we believe the JCI should trend upwards in 2H23 on improved macroeconomic conditions, as consumer spending is likely to normalise after the increase in the minimum wage is realised and the impact of inflation subsides. We prefer a bottom-up approach – investors should buy on dips, for the large-cap value stocks and counters with solid fundamentals. Our end-2023 target for the JCI is 7,450pts, based on 11.3x FY24F P/E (-1.5SD from the market’s 5-year P/E band) with FY23-24F EPS growth of 7.1-8.2% YoY – driven by the financial services, basic materials and consumer sectors.

• Malaysia. Investors should actively look at opportunities to build equity positions on weakness. The market continues to seek clarity on key government policy priorities following the formation of the unity government – which keeps regulatory risks elevated. The re-tabling of Budget 2023 on 24 Feb will be an important milestone that will offer clues on key priorities and initiatives for the unity government. Investors should accumulate large-cap value stocks on weakness, with selective opportunities in the small- and mid-cap spaces. We have OVERWEIGHT ratings on banks, oil & gas (O&G), gaming, basic materials, non-bank financial institutions (NBFIs), healthcare and property. Our end-2023 FBM KLCI target of 1,660pts is based on 15x (-0.5SD to mean) target P/E to FY24F EPS.

• Singapore. The STI should deliver double-digit EPS growth, on strong growth from the banks. While its low P/E could reflect investor concerns about the sustainability of EPS growth amidst a potential recession, this is not the base case. The positive effects of higher tourist inflows from China’s reopening on the tourism, services, and retail sectors should offset effects of the global slowdown on the local economy. We believe Singapore equities will end higher this year, even as global recession risk and central banks’ policies keep markets volatile in the short term. Our end-2023 target for the STI is 3,440pts, from ascribing 11.5x target P/E to 2024F earnings.

• Thailand. The effects of the COVID-19 pandemic, inflation and rising interest rates continue to dominate Thailand's economic landscape. The SET will continue to face these challenges in 1H23, albeit at a slower pace. Despite the threat of a global economic downturn, Thailand should post more robust YoY figures, as 2023 will mark a full year of economic reopening activities following the pandemic's devastation of businesses. Consumer spending, tourism, and investment growth are critical economic drivers. Also, the upcoming general election in May 2023 will be another market driver. Our end-2023 target for the SET is 1,818pts, premised on 18x target P/E.

Source: RHB Research - 17 Jan 2023