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Southeast Asia's growth to wane but still outperform

Jovi Ho
Jovi Ho • 11 min read
Southeast Asia's growth to wane but still outperform
Indonesia was the only Asian equity market to produce positive returns in US dollar terms in 2022.
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Asia saw a North-South divergence in economic and market performance in 2022, notes Citi Global Wealth. In the south, Thailand enjoyed a strong revival of tourism that is likely to accelerate. India saw a notable investment boom and capital inflows. Indonesia and Malaysia rode the commodities boom.

Meanwhile, North Asia, in particular Hong Kong and mainland China, was slower in reopening, says Citi. Geopolitical escalation weighed on Taiwan while South Korea was also hit by the tech bear market, particularly in semiconductors.

Southeast Asian economies displayed resilience in 2022 relative to their North Asian peers, says Credit Suisse. While Southeast Asia’s economic growth will probably wane in 2023, the region is still likely to do better than the rest of the world which is edging towards a recession, adds the bank.

Amid deeply negative sentiment toward global equities, Indonesia was the only Asian equity market to produce positive returns in US dollar terms in 2022, up 2%. India (–6% in US dollar terms) and Thailand (–5%) managed positive local currency returns, above China (–32%), Taiwan (–30%) and South Korea (–28%).

Earnings results for the year seem to corroborate the equity returns, with Indonesia, Thailand and India in the lead, writes Ken Peng, Citi Global Wealth’s head of investment strategy, Asia-Pacific.

See also: How bad could a recession be?

Hence, even when faced with external weakness, Asia could avoid a recession in 2023, he adds.


We expect emerging market (EM) Asian real GDP growth to reach 5.0% in 2023 after dipping to just below 4.0% in 2022.

The key turnaround is China, where growth is likely to rebound from 3.5% to 4.5%, writes Peng. Hong Kong’s economy may reverse from 2.6% contraction to 2.8% growth, he adds.

See also: Watch for policy pivot in China, overstretched stocks in India

Meanwhile, HSBC Global Private Banking (GPB) forecasts a more measured 4.3% GDP growth in Asia ex-Japan this year, up from 3.5% in 2022. “[This] is still respectable compared with many developed economies which should see close to zero growth in 2023.”

Asia ex-Japan stands out as an outperformer, says Fan Cheuk Wan, HSBC GPB’s chief investment officer, Asia. This is the only region where HSBC sees growth accelerating between 2022 and 2023, trumping its forecasts for the US (2.0% in 2022; 0.8% in 2023), Eurozone (3.4% in 2022; 0.0% in 2023), the UK (4.4% in 2022; –0.5% in 2023) and the global average (3.0% in 2022; 1.9% in 2023).

As the reopening boost fades, Credit Suisse expects GDP growth of the Asean-6 — Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam — to moderate to 4.4% in 2023, from a projected 5.6% last year. Nevertheless, the six countries should receive some support from sustained demand for commodities and a continued recovery in services, says Credit Suisse.

“In many respects, Asia will spend much of 2023 coming to terms with the economic and financial forces unleashed during 2022,” notes John Woods, chief investment officer, Asia-Pacific, at Credit Suisse.


We anticipate that interest rate hikes by major global central banks will continue at least through 1Q2023, which will put upward pressure on interest rates in the region and ensure currency volatility in the region remains high. Consequently, the economic growth rates for Asia are likely to slow, although I anticipate that they will stabilise toward the end of the year.

Bank-heavy Singapore equities might benefit from the gradual rise in US yields while REITs stand to gain from a revival of business travel and other services activities, says Woods.

See also: 2023 for crypto: Deep freeze, recovery or rocket?

Economic data suggest the ongoing recovery in the services sector should persist even as the goods sector slows, he adds. “At this juncture though, we expect equities to perform in line with global equities.”

Woods also points to Thailand, whose tourism-related sectors “should continue to do well” as Thailand reopens to the world and welcomes Chinese tourists once again. “We expect the broader market to perform in line with the region as expensive valuations are likely to cap its further outperformance.”

Southeast Asian currencies are likely to remain constrained against the US dollar, says Credit Suisse, although those with resilient trade and current account surpluses are likely to fare better, with the Indonesian rupiah and Singapore dollar best placed.

The rupiah is likely to outperform, adds the bank, supported both by a strong trade surplus via commodity exports, and an attractive carry of around 6% p.a. against the US dollar.


Indonesia’s economic recovery allows the central bank to focus on inflation — both domestic and imported — by hiking rates and intervening in the rupiah.

The Asean market is the second best-performing market in Asia after India, says PineBridge Investments. “With high-quality companies in the early stages of their post-pandemic recovery, many are still trading below historical averages. Companies are taking advantage of pent-up demand in the short term, [such as] travel and tourism, and secular growth drivers, such as digitalisation, consumption, sustainability and urbanisation, over the long term.”

PineBridge expects Asean economies to collectively grow 4.9% in 2023. This is among the fastest in the world, says Elizabeth Soon, head of Asia ex-Japan equities. “Although Asean companies face the same inflation and rate headwinds as the rest of the world, we expect the region’s rate hikes to be less hawkish than the Fed’s.”

Southeast Asia is intertwined with China as a source of investment and supplies as well as a market for its products, and it could benefit from China’s reopening, says Soon. However, the rise of India as an alternative global manufacturing hub poses competition for emerging Southeast Asian economies that are also positioning to attract global supply chains, she adds.

Bungee jump or slingshot trajectory?

JP Morgan’s team of Asia equity analysts likens Asean’s market trajectory to a bungee jump. “It will price in a global growth forecast below-trend, as Fed funds rate will reach 5% and a US recession is expected in end-2023.”

During previous periods where global GDP was below-trend and declining, Asean equities’ average quarterly return was –4.7%, with staples, utilities and healthcare the best-performing sectors, notes JP Morgan.


Despite the correction leading up to a recession, Asean markets tend to decline for several months in a recession and only do well 12–18 months after the recession ends.

Within Asean, JP Morgan analysts prefer Thailand, followed by Indonesia and Singapore.
The analysts are overweight on Indonesia for its resilient domestic consumption and strong foreign domestic investment (FDI) flows, structural tailwinds from reform agendas in green energy transition and its electric vehicle ecosystem. They are also overweight on Vietnam as a structural, off-index play.

Thailand was upgraded to overweight on Jan 10 as a tourism revival would likely have knock-on effects on local business sentiment and consumer confidence in the region, says JP Morgan.

Singapore earned a neutral call as slowing global demand could impact export growth, and a potential US recession and funding cost pressures weigh on these economies.

Finally, JP Morgan analysts are underweight on Malaysia, given its heavy reliance on trade and weakness in the gloves sector. Analysts prefer plantation stocks, given a potential recovery in the price of crude palm oil.

Similarly, the Philippines faces challenging macro conditions including twin deficits and high inflation-led demand weakness, explain the analysts, who are underweight on the country.

Within the Asean region, JP Morgan analysts are booking profit in the financials and energy sectors while upgrading the healthcare and utilities sectors to overweight.

Its top picks for Asean include Indonesia-listed Bank Rakyat Indonesia, Bank Mandiri, Telkom Indonesia Persero, Indofood CBP, Merdeka Copper Gold and Mitra Keluarga Karyasehat, and Thailand-listed CP All, Global Power Synergy, Home Product Center and Thai Union Group.

Vietnam’s Techcombank and Asia Commercial Bank JSC join JP Morgan’s top picks, along with Philippine-listed SM Prime Holdings, Manila Electric Company, Universal Robina, Jollibee Foods and Wilcon Depot.

Rounding out JP Morgan’s top picks are Malaysia-listed names CIMB Group Holdings, IHH Healthcare, Sime Darby Plantation, RHB Bank, Kuala Lumpur Kepong, Westports Holdings and Genting Plantations.

At home, JP Morgan selects United Overseas Bank, Singapore Telecommunications (SingTel), Thai Beverage, Genting Singapore, Frasers Logistics and Commercial Trust and First Resources.

What local banks say

Asean-5 outperformed Hong Kong and China this year, note DBS Group Research analysts, as their service sectors recovered strongly from the synchronous reopening of air borders.

Countries that benefited most were Thailand and Singapore. Furthermore, Singapore’s Straits Times Index (STI) drew strength from bank stocks that benefited from the rising interest rate environment, while Indonesia gained from the strong commodity prices.

Going forward, Asean should continue to benefit from the continued recovery of the travel-related sectors, even as the region weathers the manufacturing slowdown.

Indonesia’s growth and policies will consolidate into 2023, says OCBC Treasury Research’s Wellian Wiranto. “A combination of resilient domestic consumption and supportive investment landscape should help bolster Indonesia’s growth in 2023, which we expect to come in at 4.8% y-o-y. While it is lower than the 5.0% that we are likely to see in 2022 due to global factors, we do not see a deep slump developing.”

Bank Indonesia is wrapping up its policy tightening move, writes Wiranto. “Depending on how the Fed’s rate trajectory will turn out, we see a scenario whereby Bank Indonesia might well have the space to keep its policy rate unchanged at the 5.5% level for 2023.”

DBS is staying neutral on Indonesia, citing profit-taking risk in early 2023 before a recovery in 2H2023 ahead of the presidential election. “Earnings are also expected to slow, albeit from a high base in 2022; 2023 earnings growth is forecast at 5.4% (DBS) and –0.5% (Bloomberg consensus).”

Here, DBS’s picks include Bank Central Asia, Bank Mandiri, Indofood, Medikaloka Hermina, Adaro Energy and Medco Energy.

Meanwhile, Malaysia’s consumption may be slowing down, notes OCBC’s Wiranto, as the post-Covid-19 rebound has been in part financed by Employees Provident Fund (EPF) withdrawals that may not be sustainable. “Going forward, the consumption support might not be as robust in part due to how the manufacturing sector will be weighed down by a downturn in global exports, especially in the semiconductor space. We see growth coming in at 4.4% in 2023.”

On monetary policy, concerns about Malaysia’s inflation are likely to persist going into 2023, even if y-o-y headline numbers may not appear too bad, says Wiranto. “Set against the relatively strong economic backdrop for the past few quarters, we see Bank Negara tweaking the rate up to 3.25% in 1Q2023, rather than 3.0% as per before. In other words, it is likely to hike by 25 basis points each in the January and March 2023 meetings.”

The Philippines could face a possible pullback in their growth momentum amid rising interest rates, note OCBC analysts. “A huge beneficiary of the post-pandemic reopening story, the Philippines economy has staged a strong recovery since it lifted its Covid-19 restrictions. Consumption expenditure has been a key driver behind this … Our forecast is for 6.6% GDP growth in 2022 before easing to 6.0% in 2023 amid global economic headwinds and as aggressive monetary policy tightening weighs on domestic growth drivers.”

DBS is negative on the Philippines, where signs point to an imminent economic downturn come 2H2023. “We see risks to earnings/growth, which has yet to be fully reflected in the market. Further earnings cuts are likely in our view. Our model assumes an 8.3% discount to consensus earnings in 2023.”

In Thailand, tourism flows have picked up markedly since Southeast Asia’s second-largest economy reopened early this year, note OCBC analysts. “Given that export growth is likely to slow amid global demand headwinds, we downgrade our 2023 GDP growth forecast to 3.8% from 4.1%. Key to watch, however, would be the extent of the tourism revival boost from China’s potential reopening, which may help to offset the downside to GDP growth.”

Thailand’s equity market should continue to outperform regional peers in 2023, says DBS. “GDP growth should accelerate from 3.2% in 2022 to 3.8% in 2023, boosted by the strong tourism comeback and recovering domestic consumption. We now expect tourist arrivals to jump from 10 million in 2022 to 20 million in 2023, and 40 million in 2024. This should help offset weakening exports that are a result of the global economic slowdown.”

DBS’s picks in Thailand are banks Bangkok Bank and Kasikornbank, along with reopening plays Minor International and Bangkok Dusit Medical Services. Other picks on the domestic consumption and election themes include Advanced Info Service, Bangkok Expressway & Metro, CP All, Central Pattana, Charoen Pokphand Foods and Land & Houses.

Finally, Vietnam’s favourable low-base effects from 2021 have faded, says OCBC, while monetary conditions have tightened and the global demand outlook is also turning south. “However, Vietnam is a beneficiary of FDI inflows on the back of the global push to diversify supply chains post-pandemic. Vietnam’s growth prospects remain upbeat compared to many Asian economies … We expect Vietnam’s GDP to moderate from 7.2% in 2022 to 6.5% in 2023 amid growing external headwinds.”

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