SET likely to see more corrections; P/E still high

The SET this week will move with volatility. Its technical resistance levels are estimated at 1,569 and 1,600 points. The support level stays in a range of 1,530-1,523 points. 

The major issues that need to be followed this week include the Monetary Policy Committee (MPC) meeting on Wednesday, which will consider the policy rate to set a balance with the exchange rate and inflation.

In the previous meeting, the MPC kept the policy rate unchanged at 2.75 per cent. In this week’s meeting, the baht’s appreciation and inflation will pressure the MPC’s decision-making. In February, inflation stayed at 3.23 per cent, higher than the policy rate.

The baht has appreciated significantly, which started to make an impact, slowing exports. The baht’s appreciation was due partly to foreign capital, which moved into the bond market and whipped up speculation in equity instruments. A policy-rate cut may be another way out. 

ASP Research expects the MPC to maintain the rate. If the result goes as expected, the earnings yield gap will stay low at 3.12 per cent, compared with the five-year average of over 5 per cent. This means that if foreign capital flows into Thailand, fixed-income instruments remain their target.

For external factors, major issues remain with the eurozone’s sovereign debt problem that could return to pressure stock markets around the world. Another euro-zone member country, Slovenia, may have to request for the Troika’s assistance after Cyprus, as Slovenia has to shoulder an over 7-billion euro bad debt problem, or over 20 per cent of GDP, in the banking system. The banking system has total assets of about 130 per cent of GDP. 

The preliminary assessment indicates that Slovenia needs about a 1-billion euro injection to help financially strapped and bankrupt banks. But about 3 billion euros may be needed to solve other sectors. 

The president and central bank governor of Slovenia will express their confidence for their self-dependence without any request for assistance, while preparing a solution through bond sales. This needs to be monitored consistently.

This week’s investment strategy is for investors to hold shares at 30 per cent of their portfolio. Stocks should have a low beta, high dividends or high profits, and be undervalued. These stocks include INTUCH, ASK, STPI and WORK. About 20-30 per cent of the investment portfolio may be used for trading shares in different periods. The stock pick is SAMTEL.

For this part of their money, investors should exercise discipline by setting a profit-making target with a clear cut-loss point. Some remaining money should be reserved for stock purchases once corrections are made to proper levels.

 

Chaiyaporn Nompitakcharoen 

Head of research

Bualuang Securities

 

The SET recovered well last week after a deputy PM gave assurances that the government will not need to impose new capital control measures. 

Foreign and local institutions bought Thai stocks on strong economic growth this year.

The key focus is the passage of the Bt2-trillion loan bill for infrastructure upgrades, and the MPC meeting on Wednesday.

We expect that the bill will get a majority vote by Parliament, which should be positive news for the stock market. We also expect the MPC will decide to hold the repurchase rate unchanged at 2.75 per cent. 

The SET should likely recover to its previous high of 1,600. Our stock picks are PS, WORK, CK, SCC and KAMART.