Cyclical plays main focus on SET

The Thai stock market inched up 1 per cent in the month-to-date, marginally outperforming regional peers’ average 1percent drop (average). Foreign investors turned net sellers in the market, after buying aggressively in the first quarter. Year-to-date, the Thai market rose 17.9 per cent to outpace regional peers’ 11.4percent gain.
DBS estimates quarterly US GDP growth will drop to 2.1 per cent in the first quarter, from 3 per cent in the fourth quarter of 2011. Consensus is looking at 2.5 per cent, with inventory accumulation likely to be the wild card. The question is what happens next? Auto sales and housing sales/ construction boosted growth in Q4 last year and Q1 this year, but have been going nowhere since; private capital spending is flat; and unemployment rate and jobless claims have been sticky. We are sticking with our 2.1percent GDP growth forecast for 2012 for now, but we see downside risks from here rather than upside. Hence, we are not surprised that the Fed wants to keep policy rates at zero until at least late2014, and that chairman Ben Bernanke left the door open to more quantitative easing (implying expectations of slower growth in the months ahead rather than a pickup).
In China, after a long pause in the process, Zhou Xiaochuan recently said conditions are now ripe to resume interest-rate liberalisation. This would help to rationalise the investment growth engine. Lending rates should be liberalised first, followed by deposit rates. The real challenge lies in uprooting banks’ tacit preference for SOEs over private enterprises.
On the domestic front, Thai banks had announced Q1 results that beat our and market expectations. Sector net profit surged 106 per cent quarter-on-quarter to Bt40.3 billion, led by smaller loan loss provision after a huge charge in Q2 2011, and lower tax rate of 23 per cent. However, core Q1 sector net profit (excluding SCB’s revaluation gain in Q1) grew only 26 per cent yearonyear, led by stronger loan and fee income growth and lower tax rates.

Sukit Udomsirikul
Senior vice president for retail strategy
SCB Securities

Last week, the Stock Exchange of Thailand (SET) index closed at 1,211.78 points, up 1.4 per cent week-on-week, the first time in three weeks that the SET closed above 1,200 points. Foreigners were net sellers, as the Fed announced a more positive view of the US economic outlook and left room for a new round of asset purchases or quantitative easing.
Early this week, the SET index may go up if Q1 US GDP growth can beat the consensus view, but for the rest of this week, the SET will be driven by economic data and news flows in Europe. Key economic data scheduled to be disclosed this week include China PMI, and US ISM and non-farm payroll. But we think that investors will pay more attention to news in Europe, which may cause market sentiment to swing to the negative. Spain’s bond auction on May 3 is a key event, as it’s the first auction since S&P downgraded Spain’s credit rating to BBB+ last week.
In summary, we expect the SET index will move in a range of 1,1801,215 points. We recommend investors take profit when the SET rises above 1,200 points or else buy only defensive stocks such as ICT, healthcare and food sector.

Vajiralux Sanglerdsillapachai
Executive director
Trinity Securities

Spain was downgraded two notches by S&P. We believe investment sentiment in SET will not be materially undermined and the bond market will marginally deteriorate, as the markets have taken into account the credit downgrade in Europe. We expect the Monetary Policy Committee meeting on Wednesday will maintain the policy rate at 3.00 per cent.
Domestic indicators are the keys to determine policy rate and depreciation of the local currency. The chairman of the Board of the Bank of Thailand, MR Chatu Mongkol Sonakul, will see his term end on Monday. However, there are two potential candidates that will sit for the next term: Chatu Mongkol and Virabongsa Ramangkula.
Virabongsa has proposed that total foreign reserves of Bt178 billion will be invested in infrastructure and has proposed to the BOT to pursue monetary easing to stimulate the economy. His proposal matched with Kittiratt Na-Ranong, the deputy prime minister and finance minister.
State enterprises like PTT, THAI and KTB would benefit should Virabongsa become BOT chairman. We believe the SET will range between 1,1801,220 points in mid-May. Thereafter, we expected a bullish trend with support from MSCI, which will place more weight on the SET. We anticipate that there is a greater likelihood of CPN, DTAC and INTUCH being included in the index. Moreover, US$500 billion (Bt15.37 trillion) of capital will flow into world equity markets due to Operation Twist (the US’ quantitative easing programme) in June. Additionally, capital funds are expected to shift from the bond market to the equity market due to the European Stability Mechanism on July 12, and US money market financial reform comes into play. This week, our top picks include BGH, CPF, SIRI and KH.