Market less likely to be driven by foreign fund flows

From the beginning of this year to Friday, foreign investors were net buyers of Thai stocks worth Bt36.6 billion (excluding sales of INTUCH stocks). If we look back, foreign investors became net buyers of Thai stocks in this round from November 29, 2011, totalling Bt54.3 billion. This drove up the price-earnings ration of the SET Index from 11.6 times to 13.3 times at present. APS Research started monitoring foreign fund flows into the SET closely due to some signals for more careful investment.

The earning-yield gap, which is calculated from earnings less one-year bond yield, is principally regarded as returns less risk premium for fund transfer from bond market to stock market. From 2004 to the present, the earning yield gap averages 5.36 per cent. It means investors need higher returns less risk premium from fund transfer from the bond market to the stock market at 5.36 per cent. However, at the current stock prices, the earning yield gap lowered to 4.43 per cent, below the average, which could prompt more capital to flow into the bond market than the stock market. And the stock market could be less driven by fund flows.

As of February 21, 2012, foreign investors held 35.9 per cent of Thai stocks, close to the record high. About 29.6 per cent of Thai stocks were held through names of foreign investors and 6.3 per cent owned via NVDR. Thus, there could be some profit-taking.

On the weighted average, the cost of foreign holding is at 1,103 points for stock purchase from the beginning of 2012 until Friday.

From November 29, 2011 until Friday, the foreign holding average cost is at 1,088 points.

Based on the environmental assessment this week, it is possible to see a momentum for fund flows into the Thai stock market continuously. However, it could be lighter. Thus, the SET Index could continue to rise. However, risks for investment will be heightened, too. The resistance level is expected at 1,152 points and the next level is 1,163 points. Stock picks for short-term trading are commodity-related, particularly oil, like PTT and PTTEP, and small- and medium- market cap stocks with positive factors like HEMRAJ, AMATA, PF and RAIMON.

 

 

Chaiyaporn Nompitakcharoen

Head of tactical research

Bualuang Securities

The SET gained 1.4 per cent last week following the easing of financial risks in EU, and modest improvement in US and German economic data. Year-to-date return of the Thai stock market is 11.75 per cent, well above our expectation. Investors remain cautious about the recent rally amid announcement of a tumbling in earnings in the fourth quarter of 2011.

Investors are looking for a recovery story in Thai corporate earnings in 2012. At the same time, an upward swing in economic data should take place, probably from the second quarters onwards plus liquidity influx into Asia. Under these circumstances, the valuation of the Thai market could expand to either its long-term average or many times above its long-term average. What are our key risks? 

nThai market may have a short-term correction if local political tension increases;

nGeopolitical tension drives up oil price upward too high and eventually creates risk for economic recovery. 

By now, we expect that the Thai stock market will continue to move upward this week. Stock picks: BTS, INTUCH, KK, KTB, IVL, and BANPU.

 

 

Kavee Chukitkasem

Assistant managing director

Kasikorn Securities

Last week, the Thai stock market continued rising for the eighth week from the beginning of this year, driven mainly by progress in resolution of Greece’s debt situation. Recently, Greece received a second bail-out. The US economy figures were better than expected, prompting positive news to the markets. Besides, crude prices reached a new high in nine months. The improving US economy and tensions between Iran and the US continue to drive foreign capital to flow into energy stocks. Bad news from downgrades of credit ratings in Europe or European banks, and explosions in Thailand do not stand as obstacles for the Thai stock market. There was more good news.

We expect the Thai stock market to continue to rise due to continuity of foreign capital flows into Thailand. The stock market is likely to price in good news from the European Central Bank (ECB) continuing to extend the Long-Term Refinancing Operation late this month. Italy and Spain are also expected to succeed with their bond auctions, which are due in February and March. This could give positive news to the stock market. We expect the SET Index to surpass its previous high of 1148 points in August 2011. Amid continuing funds flow, we suggest blue-chip stocks like PTT, PTTEP, TOP, PTTGC, SCC, SCB, KTB and BBL or laggard fundamental stocks like HMPRO, BGH, MINT, IRPC and AP.

However, concerns over the euro-area debt problem continue to pressure the stock market. It is possible for Greece to miss debt repayment in the future. Risks to inflation may return as a negative factor. There could also be risk for foreign capital to flow out any time as the stock market has jumped more than 10 per cent from the beginning of this year. Hence, we, recommend investors to be careful in speculation.

 

 

Tisco Securities

The market is starting to look overbought after rising more than 11 per cent year to date and could soon see a fresh bout of profit-taking. With the earnings season drawing to an end and European governments agreeing to a second bail-out deal for Greece, there appears to be a lack of strong catalyst to further boost sentiment.

However, any correction is likely to be brief given recent earnings upgrades and continued buying by foreign investors (Bt42.8 billion year to date). Other positive factors for the SET are the Constitution Court’s approval of two executive financial decrees, improved economic data in the US and growing expectations that China will avoid a hard landing.

We have turned more positive on banks and have revised up our 2012-13 fiscal earnings growth forecast for the sector to 19 per cent and 18 per cent respectively. Although the sector has rallied following the resolution of the Financial Institutions Development Fund levy issue, we believe banks are attractive as large-cap consumer plays on the increase in government spending and post-flood recovery efforts. Their valuations are still below other SET sectors that have already rallied year to date and are inexpensive to regional peers considering their superior earnings growth and higher dividend yield.

We recommend using any market weakness to accumulate cyclical plays in the energy and petrochemicals sectors. Both sectors are supported by the uptrend in oil prices due to geopolitical tensions between the US and Iran and the risk of supply disruptions in the Middle East and Africa. We also like selective contractors (benefiting from upturn in public and private investment), hotels (improved outlook for tourism) and industrial estate operators (post-flood recovery in foreign direct investment).