Thai equities are given an overweight outlook this year, attributed to macroeconomic stability and investment impetus from domestic investors, says HSBC Global Research.
"The outperformance of Thai equities in 2018 boiled down to two factors -- macro-stability and support from domestic investors. We believe these factors will continue to support Thai equities in 2019 too," said HSBC Global Research in its report titled "Asean Equities Outlook".
The Thai stock market trades higher than historical multiples, but has room for further multiple expansion, said the report.
"Foreign funds are as underweight as they have ever been historically and consensus earnings expectations of 5.7% for 2019 can surprise on the upside because of the improving outlook on domestic consumption and investment," said HSBC.
Thailand's economy saw an "exceptional performance" in exports and tourism-oriented sectors in 2018, while domestic demand remained subdued, according to the report.
The Thai economy grew by 3.3% year-on-year in the third quarter after expanding by 4.6% and 4.9% in the second and first quarters of 2018, respectively.
The National Economic and Social Development Board (NESDB) forecast Thailand's GDP would expand by 4.2% in 2018, with a 7.2% growth in exports and 4.7% rise in private consumption anticipated. The NESDB will announce official GDP growth data on Feb 18.
"In our base-case scenario, we expect private consumption to maintain a firm growth rate on the back of rising household income and election campaign spending," said the report.
HSBC also gives an overweight outlook for Singaporean equities, where the stock market is considered as the largest and cheapest in Asean with the highest dividend yields.
"Singaporean equities have traded between 12-14 times and they are available at cheaper than this range. Singapore's 12-month forward dividend yield is also the highest in the region and looks attractive at 4.8%," said the report.
For Asean equities, global interest rates will be the key drivers as the US Federal Reserve is expected to cease its rate hike cycle, while Asean central banks are projected to reach peak monetary policy tightening, according to HSBC.
"Lower rates mean higher price-to-earnings ratio multiples. In addition to tailwinds from lower rates, we expect valuations to expand," said the report.
