Singapore is least preferred investment market in ASEAN3

Invest instead in Thailand and Indonesia due to their immense growth prospects, advises Morgan Stanley.

Singapore, in contrast, will reel from "sluggish" and "volatile" global growth outlook, and "unsupportive" valuations that make it less appealing compared to most ASEAN3 countries, which includes the 10 country members of ASEAN plus China, Japan and South Korea.

Here's more from Morgan Stanley:

We launch our MSCI South East Asia (SEA) index target with 9.2% implied upside. Within ASEAN3 Thailand and Indonesia remain our preferred markets while Singapore is still our least preferred. Upside surprise to investment growth will likely offset potentially volatility in policy/political environment. We are more optimistic than consensus on Indonesia as we expect an earnings upgrade of 3.5%. On the other hand, we are less optimistic about Singapore than consensus on valuations and lower growth trajectory.

ASEAN3: Prefer Thailand and Indonesia over Singapore. Amongst the ASEAN3 markets, we continue to prefer Thailand and Indonesia over Singapore. We believe that Indonesian markets will be driven by a combination of upward revisions to consensus earnings, as delays in fuel price hikes improve the earnings growth outlook, as well as improved investment-led growth momentum in the economy. Although political noise is likely to increase during 2012, we expect limited impact on Indonesia’s underlying growth potential. However, a significant increase in crude oil prices over US$130/bbl would likely reignite inflationary concern and impact the market negatively. Further, an increase in the fuel-related subsidy burden is likely to limit potential a re-rating.

Thailand: Three Drivers with Fat-Tail Events. Thailand’s cyclical fiscal stimulus-led growth prospects combined with stable global growth and supportive valuations should drive markets through 2012. However, Thailand faces extremely fat binary tail events in the next 1-2 quarters due to its political framework. Political reconciliation could drive a significant re-rating in the Thailand equity markets on our bull case of 46.3% upside from current levels, while political disruption could eventuate in our bear scenario of -38.9%. The binary nature of the tail events encourages us to focus on the base case, which appears promising for Thailand this year.

Singapore: Unattractive Growth and Valuation Mix. We believe that sluggish and volatile global growth outlook combined with unsupportive valuations makes Singapore a relative less attractive market within the ASEAN space. Singapore is our least preferred market within ASEAN3.