Silver linings remain for Asean

WITH global uncertainty hanging thick in the air, Asean markets are bracing for a bumpier 2025.

While growth is not off the table, the pace is likely to be more subdued – especially as governments across the region reassess their economic outlooks amid tariff uncertainties.

CGS International (CGSI) Research reckons the road ahead could feel like déjà vu, with markets flashing familiar warning signs reminiscent of past downcycles.

In a note, the research house uses history as a guide, analysing three major downturns – the 2008 to 2009 Global Financial Crisis, the 2015 oil price collapse, and the 2019 Covid-19 pandemic – to estimate how bad things might get before they get better.

“We identified three past major downcycles to assess the potential quantum of earnings per share (EPS) cuts ahead.”

“During these periods, average EPS decline in Year 1 of the crisis hovered at 28% across MIST (Malaysia, Indonesia, Singapore, Thailand) but rebounded to around 25% in Year +1.”

That rebound potential offers a glimmer of hope.

Still, CGSI Research believes earnings across the region may be further revised downwards. It estimates that a 10% cut in EPS would translate to a 1% to 9% decline in 2025 earnings across MIST, with market valuations at 12 to 15 times forward earnings.

“The tariff impact and sector headwinds such as for banks, would result in 3% to 10% points across markets,” it notes.

Malaysia EPS growth forecast

Malaysia, once thought to be in relatively safer waters, now looks vulnerable.

While CGSI Research’s baseline forecast shows 9% EPS growth for the benchmark FBM KLCI in 2025, this may prove overly optimistic.

“Back of envelope calculation shows that 5.1% points of this growth could be at risk – that is, our growth forecast could drop from 9% to 3.8%,” it explains, noting that sectors like agribusiness, petrochemicals and banks are likely to feel the squeeze from external tariffs and broader macro pressures.

This translates to a 4.8% cut to its EPS forecast – more than just a scratch on the surface.

Indonesian export drag

Indonesia also takes a hit, though to a lesser degree.

“We are estimating a 3% to 5% points EPS cut from the current consensus level... bringing down 2025 EPS growth to a small negative territory of 2%,” it says.

The assumption is based on a potential 10% reduction in exports to the United States and China, shaving 12 basis points off the gross domestic product (GDP) growth projection of 5%.

Interestingly, the damage is cushioned by Indonesia’s relatively low reliance on exports.

“Indonesia’s net export average over the last five years was a small 2.4% of GDP, among the smallest in Asean.”

Singapore still a favourite

In contrast, Singapore emerges as a relative outperformer.

“We believe weaker macroeconomic conditions suggest that Singapore banks may see potential earnings cuts,” CGSI Research says, estimating a 6% to 7% downside to market EPS if lending growth slows and fee income from wealth management drops.

Still, Singapore might scrape by with modest earnings expansion.

“Nonetheless, we could still see market growth of about 1% to 2% backed by capital goods and Internet services.”

CGSI Research’s year-to-date market performance also shows more resilience, declining just 10% compared to an average 17% dip across the rest of MIST.

Valuations and stability help keep Singapore in favour.

“Based on currency and political stability, market valuations as well as dividend yield, we prefer Singapore ahead of Malaysia.”

Thailand’s defensive mode

Thailand, while expected to clock in 5% EPS growth, carries more downside risk.

“With tariffs eventually set to be effective, we believe there could be downside risks and assume -10% impact on market EPS,” CGSI Research highlights.

It recently revised its SET index target downward from 1,380 to 1,200, citing political instability and the knock-on effects of US tariffs.

“We prefer domestic defensive and high-yield plays,” the research house states, noting that the Bank of Thailand’s rate cuts and stimulus efforts could serve as catalysts to offset external pressure.

Interestingly, CGSI Research’s country preference still leans toward Thailand over Indonesia, partly due to valuation and yield support.

Bargain hunting begins

Despite the gloom, CGSI Research has spotted value in a handful of names across the region that may have reached “compelling buy levels”.

These include MISC Bhd and Dialog Group Bhd in Malaysia, Genting Singapore Ltd and City Developments Ltd in Singapore, and PTT Exploration and Production PCL and Hana Microelectronics PCL in Thailand.

“While earnings cut risks present, we benchmark these names to trough valuations during the Global Financial Crisis and Covid-19.

“Specifically, those that trade below both troughs stand out,” CGSI Research explains.

“We believe the risk-reward in the medium term is very attractive at current levels for patient investors,” it highlights.

What now?

The truth is, no one quite knows what lies around the corner.

“While we wait for major negotiations to take place among global leaders, we believe governments across Asean countries could revise down GDP growth for 2025 and 2026,” CGSI cautions.

“The full extent of the global slowdown will take time to reveal itself,” it adds.

Markets may be bracing for impact but they’re not in full panic mode yet.

“Concerns over downside risks will persist as markets are not convinced that the governments have full control of what lies ahead, although the doomsday possibility of a recession may not be a real shock if it comes,” the brokerage says.

For now, the MIST region still holds onto positive territory, with CGSI Research forecasting average GDP growth between 1% and 5%. That’s not stellar – but it’s not nothing.

And in times like these, a little resilience might just go a long way.