Thai stocks have potential to bounce back

What is its implication for US growth? The US Fed reiterates a low policy rate until 2013 and it will do more to reduce long-term interest rate reference. It implies that US economic conditions will be tough and need more fiscal measures. Obama's bill on job creation may not be enough. Market turbulence continued after the US Fed had finished its statement. However, we view that the Thai market should sustain or likely enjoy a small bounce as the EU/IMF may approve bail-out funds. We suggest that investors keep cash or stay with defensive stocks. Our stock picks: INTUCH, SAMART, BGH and WORK.

Tisco Securities

Fears of a new global recession are keeping Thai stocks under pressure. The SET Index fell below the 1,000-point level last Thursday after the Federal Reserve warned that the US faces a grim economic outlook with significant downside risk. Meanwhile, foreign funds show no signs of ending their selling spree. As of September 22, foreign investors had offloaded a net Bt12.7 billion of Thai equities month-to-date, raising their year-to-date net sales to Bt31.5 billion.

Although the big picture remains bearish, Thailand is witnessing some positive trends that may help the market bounce back once panic selling ends. In sharp contrast to expectations, export growth remained robust, at 31.3 per cent year-on-year in August, versus 38.3 per cent in July thanks to a strong rise in agricultural products amid high prices. Another positive factor was the improvement in monthly loan-growth numbers for August. Loan growth for the big banks which have reported results so far came in at 1.2-1.5 per cent month-on-month, a pickup from the average month-on-month contraction of 0.2 per cent in July caused by large corporate sector repayments.

Banks should also benefit from the government's tax deduction programme for first-time car and home-buyers. Our sensitivity analysis indicates that combined new loan demand creation from these schemes could range between Bt50 billion and Bt100 billion, equivalent to 0.7-1.4 per cent of system loans outstanding. Bank stocks remain our preferred sector due to durability of loan growth and margins and the recent pullback in valuations. Our top pick SCB is the likeliest beneficiary of the government's incentive schemes in view of its leading consumer banking franchise and strategic emphasis on gaining market share.

Regarding tax cuts for first-time home-buyers, we looked at planned 2011 launches and noticed that LPN, PS and SPALI have the most projects under Bt5 million (the maximum value permitted under the scheme). However, considering that the measures are likely to trigger purchases by buyers in the high income-tax bracket, we expect demand for projects in the price range of Bt3 million to Bt5 million to increase. AP, QH and SPALI are developers that price many of their products in this range and should therefore be

the biggest beneficiaries of the government's tax-deduction measures.