Lean times ahead for Thai bourse

The stock market is facing risks and it is recommended that investors hold cash up to 70 per cent of portfolio.
The SET Index was sustained at a high level with price earnings ratio of close to 12 times. This came under thin trading turnover with Bt16.1 billion on November 24, the ninth consecutive day of drop in turnover. The trading figure was low when compared with an average daily trading turnover of Bt22.6 billion in November of this year.
Signals of negative trading behaviour were also visible. These included foreign investors’ net selling for 13 out of 17 business days. The latest combined figure was Bt13.6 billion. In the futures market, foreign investors continued to be net sellers of derivatives totalling 5,300 contracts during November 1724. From the viewpoint of trading behaviour analysis, it raised alarms for the SET Index.
On a fundamental level, surrounding factors are relatively negative this week. The external factors start from Europe’s sovereign debt problem, which tends to spread, due to the downgrade of Portugal’s credit rating. Germany was also not able to sell out its bonds. The bond yields of France and Italy rose. These signalled the severity of the problem. This problem, and the unclear US solutions on its public debt and budget, are expected to be a risk to global economic growth. Next year’s global growth is expected to see a downward revision. The IMF projected global expansion at about 4 per cent for 2012.
In Thailand, the impacts from the floods became clearer. ASP Research revised down listed companies’ earnings for 2011 after a third-quarter earnings announcement of about Bt30 billion. The downward revision is due to damage from the floods and adjustment of some companies’ deferred taxes. The 2012 market earnings per share was also revised down to Bt91.77 from the previous estimate of Bt95.02. The country’s GDP estimate was cut to 1.5 per cent for 2011 and 4 per cent for 2012.
The issues for monitoring this week include the Monetary Policy Committee meeting on Wednesday November 30, which is expected to cut the policy rate by 25 basis points. This is expected to be the only positive sentiment for the Thai stock market. However, the likely downward revision at the same meeting should also be closely monitored.
As mentioned above, the Thai stock market could face relatively high risks. Hence, investors are advised to reduce their investment portfolios and hold cash up to about 70 per cent of portfolio. There could be opportunities for stock accumulation in the SET Index below 950 points. Short-term trading is suggested for stocks that could benefit from the expected rate cut, like those in the property sector. Stock picks are SC, AP, RAIMON and LPN.

Chanpen Sirithanarattanakul,
Head of Research
DBS Vickers Securities (Thailand)
The Thai market eased slightly in the last two weeks on renewed concerns over the debt crisis in Europe and the impact of the recent flooding on the Thai economy. The third-quarter results announced were generally in line with our expectation, while third-quarter GDP was weaker than expected.
Looking forward, the Monetary Policy Committee (MPC) will meet on May 30 to decide the policy rate. After the recent comments from the Bank of Thailand that it is open to an emergency rate cut to boost domestic sentiment, we believe a 50 basis points rate cut to 3 per cent this Wednesday is more probable.
The recent flooding has hit Thailand hard, and fourth-quarter GDP growth will be very poor. The magnitude of the impact on listed companies, nonetheless, varies from one to another. Sectors most affected are electronics, automotive, insurance and property. The flooding crisis will take its toll on corporate earnings up to the first quarter of next year.
In all, the weak earnings outlook for the next two quarters and lingering concerns about the European debt crisis would limit market upside in the near to medium term. We recommend investors focus on stocks that will weather the flooding crisis.
Our top picks include Siam Cement (SCC), Home Products Centre (HMPRO), Siam Global House (GLOBAL), Ch Karnchang (CK), LPN Development (LPN), and Central Pattana (CPN). Positive news flow on flood rehabilitation packages and the proposed large spending on reconstruction will be share-price catalysts for SCC, HMPRO, GLOBAL, and CK. Fear of future flooding could sway demand towards condominiums in the city, which should be positive for LPN, which focuses mainly on condominium development. Lastly, CPN should see solid earnings growth this year and next. Growth should be supported by the reopening of Central Lat Phrao and the opening of several new malls.
 
Vajiralux Sanglerdsillapachai
Executive director
Trinity Securities
We expect that the index will decline during the second week of December, however, in the short term we still expect the SET to outperform markets in the region (even though the floods have affected the GDP and the automobile and electronic sector) as we still have our oil and gas-related stocks. PTT family investors could switch from Banpu, IVL (wait for the new round between November 2729) to the PTT group – PTT, PTTEP, PTTGC, TOP – as the stocks in this sector have weightage of over 50 per cent of the total market. We are still bearish on the bank and property sectors, but bullish on the energy sector (oil and gas-related business), retail, health, and information and communications technology. Since the Thai economy might face its worst situation in the fourth quarter and the GDP could drop by 3.7 per cent, the indices we have to keep a close track of are:
-Consumer Confidence Index for the November, which might continue to decline from the previous month – it will be released on December 8;
-the capacity utilisation rate of some industries, which is announced by the Bank of Thailand at the end of every month. We expect the October utilisation rate – to be announced this month – and the utilisation rate of the current month to be heavily affected by the floods.
These might be factors for foreigner investors to continue slashing their Thai equity holdings.