Now is a good time to sell stocks, CIMB
CIMB Securities (Thailand) has downgraded the Thai stock market from overweight to neutral, saying now is a good time to sell before foreign inflows reverse.
The Stock Exchange of Thailand Index rose 9.68 points, or 0.86 per cent, to close last week at 1,129.93 points. Brokerage house CIMB has maintained its year-end index target at 1,080, based on a 1.9 times price-to-book value ratio in 2012.
Driven by foreign inflows, the SET Index has dropped nearly 20 points from its recent peak of 1,148 points in August last year, which was then its highest mark since July 1996. From the beginning of this year to last Friday, foreign investors were net buyers of Thai stocks worth Bt34.72 billion.
“Foreign investors have been net buyers since December 2011. We believe now is a good time to sell into strength before the flows reverse,” the brokerage house said.
Boosted by the plentiful liquidity worldwide, foreigners may become more positive on Thailand thanks to the improvement in its political stability. Continued inflow of foreign capital into the Thai bourse would send the SET Index higher.
However, foreign capital is highly sensitive to news developments, particularly from the euro zone, and can easily reverse direction.
Currently, the mounting confusion over whether Greece will get vital bailout cash to avoid defaulting next month is renewing fears that Europe’s debt crisis will spread to bigger countries like Italy.
However, the recent explosions in Bangkok or concerns over the floods could play as downside risks for the Thai stock market, CIMB Securities said. Another risk could stem from a Constitution Court ruling on February 22 on whether two executive decrees – on the government’s plan to borrow for water-management projects, and the legacy debt management transfer to the central bank – are constitutional.
“Generally, we expect the SET’s ROE [return on equity] to improve from 17 per cent last year to 18 per cent this year and 18.4 per cent the next. However, the improvement seems to be slower than in regional peers,” CIMB Securities said.
The brokerage house favours domestic plays to those exposed to external uncertainties. It overweights agriculture (food), banks, hospitals and retail, while it trims petrochemicals.
