SET direction depends on external factors

The eurozone crisis will remain a major factor to influence the SET Index this week. 

After the resolutions reached at the EU Summit last week, it remains to be seen how the resolutions will be implemented. It is certain to be a long story, and the real sector will soon feel the pinch of the crisis. 

With 10 per cent of exports going to Europe, Thailand has had little direct impact from the crisis. Yet, it has felt indirect impacts, as its trade partners have suffered more from the crisis. Given that the indirect impacts cover nearly 11 per cent of Thai exports, the crisis will totally affect 21 per cent of Thailand’s exports. But it remains to be seen how the crisis will hit Thai exports, and this is posing two main risks:

The possibility of an economic growth forecast revision, from 5-5.5 per cent in 2012. In the first quarter, the economy expanded only 0.3 per cent from the same period last year. Moreover, aside from Thailand, many other countries may also revise down their growth targets, like those in the BRIC block, South Korea, Hong Kong, Taiwan and Singapore.

The possibility of a downward revision in listed companies’ earnings. Though listed companies reported outstanding 29-per-cent earnings growth in the first quarter, a possible decrease in commodity prices particularly for oil and petrochemicals could severely dent the earnings of the energy and petrochemical sectors. Our house has revised down the earnings growth forecast by 2 percentage points, due mainly to the lower forecast for oil and coal prices. Analysts in several overseas markets like China, Indonesia, Hong Kong, Malaysia, Singapore, the Philippines, South Korea and Taiwan have also revised down earnings growth forecasts for their markets.

Under the new EPS growth forecast, we expect the SET Index to peak at 1,237 points in the remaining months of this year at a price/earnings ratio of 14 times. This means the peak has past, as that was achieved in early May. The support level is expected to be 1,050-1,060 at a P/E ratio of 12. 

We still suggest investing 50 per cent of your portfolio in stocks. Recommended stocks are those in the property sector, thanks to the robust growth prospects in the remaining months. Outstanding among them are PS, SC and RML. The next are those in the banking sector, as banks will release second-quarter results in the second week of this month. We expect them to further show huge profits in the quarter. Top among them is BBL. Last are stocks in the ICT sector, chiefly due to the clearer sign of a 3G auction. INTUCH leads in this group.

 

Tisco Securities

Market behaviour is still being dictated by external events, particularly the eurozone debt crisis. However, the SET is being supported by more positive domestic data that shows further signs of Thailand’s economic recovery.

The latest Thai economic indicators for May are particularly encouraging, with manufacturing production increasing by 5.5 per cent year on year  and industrial capacity utilisation rising to a record high of 75.9 per cent. Meanwhile customs-based exports in May rose by 7.7 per cent year on year to US$20.9 billion, the highest growth rate since last September and well above the market consensus of 0.5 per cent.

Global economic headwinds have not dampened domestic loan demand, with loans from banks under our coverage (excluding KTB) rising 13.3 per cent year on year and 1.1 per cent month on month in May. Another positive catalyst for the sector is the Cabinet’s decision to extend deposit protection for commercial banks at Bt50 million per account for three years, with the main beneficiaries being smaller and less well-capitalised banks. We maintain our overweight rating on the sector, with KBANK and SCB as our top picks.

The SET has gained more than 7 per cent since its recent low of 1,099 on June 5. The recent improvement in domestic economic news flow, coupled with last Friday’s announcement that EU leaders have agreed to use the eurozone’s bail-out fund to support troubled banks without adding to government debt, could result in further share price gains in the short term. Nonetheless the bank recapitalisation plan is not a “big bazooka” solution and we believe market upside will be capped by the prolonged eurozone crisis, extended weakness in commodity prices and the faltering US recovery.

We continue to favour domestic and external names that offer a high degree of resilience to further deterioration in the global economy and have high earnings visibility. Among our top picks are ADVANC, CPF, TUF, STEC, BLA, MINT and HEMRAJ.