KUALA LUMPUR: This year could mark the start of a broad-based earnings recovery across Asean, according to US investment bank JPMorgan.
This follows several years of weak domestic demand, sharp interest rate hikes, elevated inflation and geopolitical uncertainty that weighed heavily on regional equity markets.
These headwinds triggered foreign investor outflows exceeding US$30 billion, pushing positioning and valuations to record lows and raising questions over Asean’s investment appeal.
However, JPMorgan believes the inflection point is emerging, led by structural reforms and supportive policy shifts.
It said Singapore has taken the lead with corporate governance improvements, Vietnam is preparing its next reform phase under “Doi Moi 2.0”, while Malaysia has advanced fiscal and budget rationalisation.
Elsewhere in the region, policy uncertainty persists, although governments are increasingly turning to fiscal expansion and longer-term strategies to address structural challenges.
Over the next 12 months, JPMorgan said the lagged impact of monetary easing and fiscal stimulus is expected to lift corporate earnings and rebuild investor confidence, particularly against a backdrop of low expectations and compressed valuations.
A softer US dollar would further support regional equities and enhance policy flexibility, the bank said in its 2026 Asean Outlook released recently.
The MSCI Asean Index, which tracks the performance of large and mid-cap equities across key regional markets, is projected to reach 850 by end-2026.
This implies about 15 per cent upside, driven by a combination of earnings growth of around seven per cent and valuation re-rating of eight per cent.
The bull and bear case targets stand at 900 and 660 respectively.
JPMorgan said improving macro conditions are also expected to support domestic consumption as governments ramp up stimulus amid slowing growth and easing financial conditions.
Consensus earnings forecasts currently start from a relatively low base, increasing the potential for positive surprises.
Valuations remain attractive, with many Asean markets having missed the broader Asia and emerging market re-rating in 2025.
JPMorgan said as investors seek diversification beyond crowded artificial intelligence trades, selective Asean sectors could benefit.
A reversion of foreign positioning to the three-year median could generate up to US$20 billion in inflows.
Externally, a more resilient global environment is anticipated, with stronger growth in the first half of 2026 led by fiscal expansion in the US and China.
Greater clarity from US-Asean trade engagement is expected to revive foreign direct investment, job creation and private capital expenditure.
© New Straits Times Press (M) Bhd
