Philippines and Thailand most vulnerable to oil-led inflation, Jefferies says

Investing.com — Jefferies analysts have warned that a "higher-for-longer" oil price environment is set to pressure ASEAN economies, with Thailand and the Philippines emerging as the most vulnerable due to their heavy reliance on energy imports. According to a new equity strategy report, rising geopolitical tensions and supply risks are entering a fresh phase of volatility, threatening to widen trade deficits and intensify inflationary pressures across the region.

Net exporters like Malaysia are better positioned to weather the shock, but analysts note that the fiscal gains from higher prices may be limited by rising domestic subsidy costs.

Inflationary pass-through and fiscal strain

The report highlights a significant divergence in how ASEAN nations handle energy-driven inflation. The Philippines is identified as particularly at risk, given the high weight of fuel in its consumer price index (CPI) basket and limited policy buffers. Indonesia and Malaysia utilize extensive fuel subsidy frameworks to cushion the impact on consumers, though Jefferies warns this comes at a steep fiscal cost.

Thailand, meanwhile, is attempting to mitigate retail price spikes through its state Oil Fund, a move that is coming under increasing pressure as global benchmarks remain elevated.

External balances and market positioning

Net energy importers are likely to see their current accounts deteriorate due to the "oil shock". The Philippines remains the most exposed due to its structural trade deficit, while Thailand faces similar external pressure as energy import costs climb.

Jefferies suggests that investors should remain cautious on energy-sensitive sectors in these regions, favoring markets like Malaysia, where the currency and equity market often provide a natural hedge against rising crude prices.

The persistence of the geopolitical premiums suggests that the expected "soft landing" for several Southeast Asian economies may be delayed. Central banks in the region may be forced to maintain more restrictive monetary policies to combat imported inflation, potentially dampening domestic consumption, if oil prices remain sustained at these levels.

Analysts maintain that in this environment, a selective approach is required, prioritizing countries with domestic production capabilities or more robust fiscal defenses against energy volatility.

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