Risks escalate on euro crisis

The euro zone crisis returns to haunt the market, as Greece is close to needing a third tranche of financial help next month. Greece’s leaders later this week will take a tour to meet European leaders. The sentiment is negative, as Germany and France may not relax their demands. This will dampen market sentiment. 

Meanwhile, there is anticipation that the Federal Open Market Committee may launch a new round of stimulus measures, probably quantitative easing. Our view is there is little chance for QE3. And in the absence of QE3, profit-taking on risk assets could follow. 

Thai listed companies in the second quarter showed combined earnings of Bt129 billion, down 39.2 per cent from Bt212 billion in the first quarter due to the poor performance of commodities stocks – energy and petrochem in particular. In the first quarter of last year, they booked huge inventory gains.

As first-half earnings of Bt341 billion declined 8.9 per cent on year against the full-year earnings growth forecast of 16-20 per cent, there is a good chance that the forecast will be revised down. The major pressure is the euro zone crisis, which is starting to hurt the real sector in various countries. 

Our house in June revised down the earnings forecast. We expect the SET Index to end this year at 1,237 points, which translates into a price-earnings ratio of 14 times. This week, the SET could test two resistance lines, at 1,248 and 1,337. Under this forecast, domestic plays should be in focus – those with little linkage to the global economy – and small- and medium-capped stocks. Hot picks are SC (fair value Bt17.82), MJD (Bt3.44), TCAP (Bt40) and HMPRO (Bt13.90).

 

 

Kitpon Pripisankit

Vice president, 

Research department 

Kasikorn Securities 

 

Last week, the market headed slightly up, as investors expect positive results for the euro zone debt crisis from the European Central Bank meetings on September 6 and September 22 as well as the FOMC meeting on September 12. Yet, profit-taking was witnessed late in the week, influenced by the weak August manufacturing indexes in China and the euro zone. 

For this week, we expect further profit-taking in the beginning. Then, the market will move sideways, waiting for new positive factors. 

In the near term, solutions to ease Greece’s debts will influence the market as well as Federal Reserve Chairman Ben Bernanke’s statements in Jackson Hole from August 31-September 2. 

Our strategy is to focus on individual stocks that are safe from global influences and show cheap valuations. Top picks are QH, TICON, TRC, STPI, DEMCO, HEMRAJ, SOLAR, ADVANC, DTAC and INTUCH.

Our target this week is the SET moving in the range of 1,220-1,250.