Jan. 5 (Bloomberg) -- A rebound in Southeast Asian stocks from one of their worst years on record may be limited in the Year of the Ox as the global recession hurts earnings growth, CIMB-GK Research said.

Investors should start buying shares of companies in Malaysia, Singapore, Thailand and Indonesia from the second quarter of 2009 because of ``compelling'' valuations, CIMB-GK analyst Toh Hoon Chew said in a report released today. Still, gains may be capped in the Chinese zodiac's Year of the Ox, defined as a castrated bull, the analyst said.

The MSCI Far East excluding Japan index dropped 52 percent in 2008, its worst year on record after a five-year rally, as the widening financial crisis dented economic growth and spurred writedowns and credit losses that exceeded $1 trillion globally. The measure had more than trebled in the previous five years.

``The year ahead can't possibly turn out to be worse than the year that has just ended,'' Kuala Lumpur-based Toh wrote in the report. ``The year of the castrated bull seems appropriate given our expectations for 2009.''

Indonesia's Jakarta Composite Index dropped 51 percent last year, a record loss and the worst performer among the four largest Southeast Asian markets. Benchmark indexes retreated 49 percent in Singapore, 48 percent in Thailand and 39 percent in Malaysia.

Those declines have made the region's stock indexes cheaper than a year earlier. The Jakarta index is valued at 8.3 times reported earnings, less than half its valuation a year earlier. Singapore's Straits Times Index trades at 6.2 times, down from 13 times in January 2008. Malaysia's key stock index is valued at 10 times earnings, while the SET is at 7.3 times in Thailand.

`Compelling' Valuations

``Valuations look compelling and will be the main driver,'' Toh said. ``Even if we assume that the bear market phase has yet to reach its conclusion, the risk-reward ratio looks enticing.''

Chinese astrology, based on a mix of philosophy and astronomy dating back more than 3,000 years, has 12 animals that combine with five elements to define each year, making up a 60- year cycle. The Year of the Ox starts on Jan. 26, where markets including China, Hong Kong, Taiwan and Singapore shut for the Lunar New Year holiday.

In 1997, the MSCI Far East excluding Japan index dropped 45 percent as the last Year of the Ox coincided with the Asian financial crisis.

This year, economic growth in the Association of Southeast Asian nations, or ASEAN, may slow to 3.5 percent from 4.8 percent in 2008, the Asia Development Bank predicted last month.

Singapore's Contraction

Singapore's gross domestic product contracted an annualized 12.5 percent in the fourth quarter from the previous three months, a Jan. 2 report showed. The economy may contract as much as 2 percent this year, twice as much as a Nov. 21 prediction, the government forecast.

Investors should own shares of Singapore's telephone and media companies in the first half, including MobileOne Ltd. and Singapore Press Holdings Ltd., CIMB-GK recommended. MobileOne, the smallest of the island's three phone companies, declined 22 percent last year, while Singapore Press, the nation's largest newspaper publisher, dropped 31 percent, the smallest among the Straits Times Index's 30 constituents.

CIMB-GK also advised investors to hold shares of PT Telekomunikasi Indonesia and Advanced Info Service Pcl, the largest listed phone companies in Indonesia and Thailand. PT Ramayana Lestari Sentosa, Indonesia's largest department-store operator, and Thai Union Frozen Products Pcl, the world's second- biggest tuna canner, are also among the brokerage's recommended holdings.

As markets start to rebound in the second half of 2009, investors should consider buying shares of so-called cyclical and financial companies in Southeast Asia, the brokerage said.

``Stay defensive in the first half of 2009 in the face of more negative data points,'' Toh wrote in the report. ``Once this is fully digested and priced in, switch aggressively to cyclicals and beaten down stocks in the second half of 2009.''

To contact the reporter on this story: Chen Shiyin in Singapore at schen37@bloomberg.net.

Last Updated: January 4, 2009 23:20 EST