UBS raises thai stocks to buy

UBS raised its rating on Thailand’s equity market to overweight from neutral, saying the peak impact of policy-driven factors that led to the sell-off and the specific challenges for companies have passed.

UBS said macro and idiosyncratic factors had dragged parts of Southeast Asia down over the past few months. Malaysia, the Philippines and Thailand are trading at pandemic lows in terms of valuations, the investment bank, based in Switzerland, said in a research note in early November.

UBS has been constructive on Malaysia and the Philippines but feels Thailand now presents an opportunity to go overweight in the region.

“The market has certainly been one of the weakest performers over the past several months. We think there was a host of top-down and company specific idiosyncratic factors that weighed on the market,” the UBS said.

With some concerns still present, probably many of these have already peaked for markets, while on the whole, valuations now around Covid-trough levels are becoming quite compelling, the firm added.

“Political and policy worries are largely behind us, as are company-specific concerns on large caps. The outlook for the market is the most positive in five years UBS said, seeing company-specific drags turning around, with the firm’s Thailand team.

UBS is positive on Thailand’s financial sector as the financial analyst expects credit costs to fall to 137 basis points (bps) this year from written and 149 bps in 2024.

UBS-covered Thai banks already have enough provisions to absorb the re-enlistment of the stage-2-non-performing loans (NPLs) that they can write off or dispose without incurring heavy provision burdens.

Thailand, meanwhile, runs a relatively modest trade surplus with the US (10th on a list of US trading partners) and direct US revenues account for a very minor portion of MSCI Thailand’s top line.

However, between existing imbalances in tariffs and the potential for this to happen, Thailand is one of the economies most at risk from President Donald Trump’s proposal to impose ‘reciprocal’ tariffs, UBS said.

The bank remains overweight China, given resilient corporate fundamentals, potential retail investor inflows, and ongoing supportive policies, especially in AI-related sectors.

China’s slow recovery is a good sign, as property sales are better than expected, tier-1 and tier-2 cities are stabilising and local governments are repaying debt more quickly, UBS noted. Policy changes favoring domestic consumption should boost Chinese equities too.

Despite the recent underperformance, valuations continue to be high while corporate earnings have been lacklustre, so India remains underweight. Notably, equity mutual fund flows from retail investors in India fell to a 10-month low in February, the bank said.

US exceptionalism with fading growth prospects should drive market consolidation but emerging markets (EM) are still expected to outperform in the next 1-3 months, according to UBS.

“The US economy appears to be slowing, and this has not yet been filtered through to earnings expectations,” the research said.

UBS also said the outlook for EM and Asian equities remains challenging challenging amid slowing global growth and growing tariff risks — not to mention other US policy moves.

Although EM valuations look appealing against developed markets, that mostly reflects the latter’s superior and strengthened returns on equity, the bank wrote.

“Outside of China, EM equities are not cheap, with current valuations around the historical ex-Covid peak,” UBS said.