Head of Research,
DBS Vickers Securities (Thailand)
The Thai stock market was down 1.5 per cent last week, in line with the regional peers’ 1.7 per cent. The market weakness was led by petrochem, bank and telecom stocks.
Foreign investors reported net sell position of Bt2.6 billion in the week, compared with Bt3 billion net sell in the previous week. Year to date, the Thai market has risen 17 per cent, against regional peers’ 5.6 per cent gain.
The market focus will be on the European Central Bank (ECB) meeting on Thursday, the German Constitutional Court ruling on the European Stability Mechanism on September 12 and the US Fed meeting on September 12-13.
We recommend focusing on domestic plays and selecting those stocks that offer good earnings visibility and near-term catalysts. At the top of our “Buy” list are Kasikornbank (KBANK), Airport of Thailand (AOT), Central Pattana (CPN), Bangkok Expressway (BECL), and Thai Stanley Electric (STANLY)
The SET Index is expected to stay firmly above 1,200. Investors, however, are recommended to lock in profit before the September 12-13 of the US Federal Open Market Committee meeting.
At the time of writing this article, one crucial event of the week had not occurred yet, which is the Fed’s Jackson Hole Economic Policy Symposium. We detail possible scenarios and the expected implications on the equity market.
In the first scenario, which we believe to be the most likely case, Fed chief Ben Bernanke might not send a signal for further policy easing at the meeting. In this case, we believe equity investors will find it a little disappointing. As a result, we should expect some sort of stock market dip in early September. However, we believe a decline in the SET Index could be just minimal and may be capped at 1,200 points. The main supporting reason in our opinion is that most investors may still hope for further stimulus measures during the FOMC meeting on September 12-13.
In the second scenario, Bernanke might signal some sort of policy easing at the meeting which is not Quantitative Easing 3. In this case, we believe the SET Index could move sideways up and test the previous high of 1,240 again. In this meeting, however, we believe Bernanke might not opt to impose the QE3 as there has been a series of positive US economic data since the beginning of August.
In any of the two scenarios, we expect the SET Index to stay above 1,200 until September 12, when, we believe, there will be major good news from Europe. The German Constitutional Court is expected to reject the temporary injunction, thereby permitting the German president to sign into laws on the ESM and the fiscal pact.
We recommended investors hold their equity portfolio and start to take profit as September 12 approaches. Global equity market may experience disappointment on September 13, as the Fed might not impose any major stimulus measures on that date. In the meantime, we prefer mid- and small-cap stocks, which have earning momentum and also upside from current prices. Our top picks in those areas are (in alphabetical order) AH, AMATA, HEMRAJ, STPI, and TMT.