Another week of volatility in store

On the downside, the euro zone will be prominent as there is no clear measure winning the majority’s approval to deal with the huge public debts. Greece’s election results would serve as an indicator of a way out. 

Our analysis is that no matter how the crisis is dealt with, the euro zone will face a period of economic consolidation. A downward revision in economic growth forecast is expected. Thai authorities have been prepared for the contagion effects, but it remains to be seen how these measures will affect listed companies’ earnings. In 2012, we forecast the Thai market’s earnings per share growth at 20 per cent. In the first quarter, the combined net profits accounted for 28 per cent of target. Earnings should somewhat slow in the second quarter, due to inventory losses of stocks in the energy, petrochemical and commodities sectors. 

Positive factors that will influence the market this week concern measures of several countries to ease the contagion effects from the euro area. Monetary-easing measures are expected. On June 8, China’s central bank decided to cut the policy rate by a quarter percentage point, for the first time in three years. It also reduced the reserve requirement for banks, to spur lending. It is expected to further cut the interest rate by 1.25 percentage points to 5.06 per cent, close to the level after the sub-prime crisis in 2008. This week, three major central banks will also convene on rates. 

Today: India’s central bank is widely expected to cut the interest rate by 25-50 basis points from 7 per cent. If this happens, it would be the second reduction, after a 25-basis points cut recently. 

Tomorrow/Wednesday: The Federal Open Market Committee is expected to extend the Operation Twist and/or launch the third-round quantitative easing (QE3). Though, it's a 50:50 chance for the QE3. 

June 21: It is highly likely that the European Central Bank, which has maintained interest rate at 1 per cent for nearly a year, will cut it by 0.25-0.5 per cent. 

This week, window dressing will be the investment theme, as the second quarter is drawing to a close. Our quantitative team’s study, based on a seven-year record, shows that the SET Index usually heads up and outperforms the average gain by 0.83 per cent in the second quarter, thanks to window dressing. The chance is 71.43 per cent. 

For this week, stocks with good fundamentals and more than 15 per cent in upside gain from fair value should be in focus: MCS and TMT, among small market caps; and BBL, SCC, CPF and RATCH among large-cap stocks. PS, RML and SC are also expected to gain from the monetary easing policy.

 

Chaiyaporn Nompitakcharoen

Head of tactical research

Bualuang Securities

 

The SET moved upward to close at near a week high of 1,170 on expectation that most major central banks will step in to curb the liquidity crisis. Last Friday, the Bank of England hinted that there are more measures and lending easing in the pipeline to stem market volatility after the Greek election results are known. Not only does Bank of England prepare for any shock, most major central banks have room to support more measures as well. We expect the US dollar to move near its peak against Asian currencies. The yield of long-term US treasury is also expected to be bottomed out. WTI oil price should well recover after it freely fell to level of US$80 a barrel. As such, we believe that the Thai stock market should have found its bottom at level of 1100. 

Bullish sentiment should continue this week with resistance of 1,190-1,200. Our picks are SIRI, JAS, THCOM, BAY, KBANK, BBL, INTUCH, TOP, and PTTGC. 

 

Tisco Securities 

 

The SET faces another volatile week as international financial markets react to the outcome of last Sunday’s general election in Greece. The election could precipitate

Greece’s exit from the euro zone and determine the future of the single currency. 

Although Thai stocks have clawed back some of their losses in May, global investor sentiment remains downbeat, with markets also concerned about the recent surge in Spanish and Italian bond yields, weak US retail sales and slowing economic growth in China. On the plus side, the disappointing dataflow has not resulted in fresh sell-offs in global equities, which appear to be supported by rising expectations of further stimulus measures by the US Federal Reserve and other central banks.

Meanwhile, the Thai market has been buoyed by an easing in domestic political tensions following the government’s decision to postpone the final reading of the constitutional amendment bill and deliberation of the reconciliation bills to the next parliamentary session in August. The political focus is now likely to shift towards a potential Cabinet reshuffle early next month when the Yingluck administration reaches its one-year anniversary.

We continue to favour domestic and external names where growth is resilient and valuations attractive but still provide exposure to a market rebound if euro-zone fears ease. Our top picks include KBANK, ADVANC, CPF, TUF, STEC, BLA and MINT.

In the industrial estate sector, HEMRAJ remains our favourite stock and should be a beneficiary of growing outbound Japanese FDI as a result of the strong yen. Note that the value of approved Board of Investment applications in May surged by 130 per cent year on year and 235 per cent month on month to Bt88.8bn.