UBS has upgraded Thailand’s equity market from neutral to overweight, stating that the peak effects of policy-driven factors contributing to the recent sell-off, as well as specific challenges facing companies, have subsided.
According to UBS, several parts of Southeast Asia, including Malaysia, the Philippines, and Thailand, have been affected by various macroeconomic and unique factors in recent months, resulting in valuations near pandemic lows.
While UBS expresses a positive outlook for both Malaysia and the Philippines, it identifies Thailand as a favorable investment opportunity. The bank noted, “The market has been one of the weakest performers lately, attributed to a mix of broad and company-specific factors that have negatively impacted performance.”
Despite some ongoing concerns, UBS believes many of these issues have likely peaked, leading to attractive overall valuations, which are nearing Covid-trough levels. The research suggests that political and policy uncertainties have mostly alleviated, along with company-specific worries regarding large caps. UBS’s Thai team anticipates a turnaround in these challenges, marking the market’s outlook as the most optimistic in five years.
UBS is particularly positive about the Thai financial sector, with analysts forecasting a decrease in credit costs to 137 basis points (bps) this year, down from 149 bps in 2024. Thai banks under UBS coverage have already allocated sufficient provisions for potential non-performing loans, enabling them to write off or sell these without incurring additional provision burdens.
On the trade front, Thailand maintains a relatively small trade surplus with the US, ranking 10th among US trading partners, with minimal direct US revenue contributions to the top line of MSCI Thailand. However, UBS warns that should President Donald Trump’s proposal for “reciprocal” tariffs be enacted, Thailand could be among the most vulnerable economies given the current tariff imbalances.
UBS retains an overweight position on China, highlighting robust corporate fundamentals, potential retail investor inflows, and ongoing policy support, particularly in the artificial intelligence sector. China’s gradual recovery, characterized by better-than-expected property sales, stabilization in major cities, and quicker local government debt payments, is seen as a positive indicator. Shifts toward domestic consumption are also anticipated to bolster Chinese equities.
Conversely, UBS maintains an underweight stance on India, citing high valuations despite recent underperformance and sluggish corporate earnings. The bank noted that retail equity mutual fund flows in India fell to a ten-month low in February.
Looking ahead, UBS expects emerging markets (EM) to outperform over the next 1-3 months as US exceptionalism diminishes, potentially fostering market consolidation. The report highlights that signs of a slowing US economy have yet to impact earnings expectations.
While EM valuations may appear attractive compared to developed markets, UBS points out that this is largely due to the superior returns on equity in developed markets. Excluding China, EM equities are not deemed cheap, with current valuations approaching historical peaks, excluding the Covid period.
