With index at 16-year high, focus on domestic plays

Our view is success requires support from countries accepting the European Financial Stability Fund (EFSF) and the European Stability Mechanism (ESM). Buyers still need approval from the bond-selling countries. On September 12, we will know whether Germany’s Constitution Court would approve the country’s involvement in the EFSF and ESM. Without the approval, the ESM would run into a problem and ECB may need to review the bond-buying plan. Meanwhile, there are growing worries whether some euro-zone countries would be able to proceed with their cost-cutting measures. 

Aside from the verdict of Germany’s Constitution Court, another factor to watch on September 12 is the Federal Open Market Committee’s meeting. Due to slow recovery in employment, with 8.3 per cent unemployment now, the Fed may focus more on creating more non-farm jobs. This should lead to further monetary easing, but may not force it to announce the third round of quantitative easing (QE3).

We believe that the ECB’s bond-buying mechanism should be top of the best news this year. Though, the good news has been somewhat discounted. Now, markets would focus on the implementation. We foresee hurdles, and this may spark many rounds of profit-taking particularly in the Thai market. 

At 1,250 points, the market’s price-to-earnings ratio (PER) is as high as 14.78 times while the prospective PER at the end of the year is at 14.15 times. The PER is now on its upper end. As such, investors should beware of risks involved. 

For now, we advise investment on domestic play stocks and mid-sized stocks with earning potential. Top picks this week are PS (fair value Bt21.59) due to prospective good results in the second half; and GUNKUL (fair value Bt23.14), thanks to the integrated alternative energy portfolio which should result in a leap-frog in financial gain in 2013. 

 

Kitpon Pripisankit 

Strategist 

Research Department

Kasikorn Securities 

 

The index weakened early last week before rising on expectation of the European Central Bank’s actions. It went on to hit a record high at 1,255 points before easing to end the week at 1,246 points. 

There is limited upside gain for the SET Index this week and we advise investors to gradually unload their holdings because of a number of reasons.

1 The ECB’s action does not mean an increase in money supply.

2 Good news from the ECB’s action and Federal Reserve Board’s action has been much discounted. 

3 Risk that the Fed will not launch QE3 at the September 12 meeting is increasing, due to better economic indicators. 

4 At the current index level, foreign investors have realised 12 per cent gains. This could trigger a sell-off. (Our research shows that foreign investors tend to sell shares, when gains are at 12-16 per cent, or when the index ranges 1,250-1,290). 

If the index weakens to 1,150-1,200, it is the right time to accumulate shares. Our end-2012 target is now 1,300 points. 

For short-term gains, some mid-size stocks with good fundamentals and weak prices like PJW, AH, MINT, SPCG, SOLAR, VNG, and BIGC are interesting.

 

SUKIT UDOMSIRIKUL

Assistant managing director

Investment Strategy Department

SCB Securities

 

Though the ECB’s action was expected, it was positive for the global equities markets. However, the commodities market won’t benefit from the ECB policy as no new liquidity is being injected into the market like quantitative easing measures.

We have a positive view of the SET Index this week. We believe that Germany’s Constitution Court will approve the setting up of the European Stability Mechanism (ESM). If not, this will be bad news. 

The SET Index is expected to move in the range of 1,230-1,260 points this week. Key factor to focus on is foreign investor net buy/sell. There are signs that inflows to Asean stock markets has started to slow down compared to the huge inflows to North Asia markets.  

Our strategy is for short-term trading. For long-term investors, buy on weakness. Our favourite sectors are property and bank. Top picks are SIRI, STEC, and KTB.

 

Tisco Securities

The SET reached a new high for 2012 after the ECB delivered exactly what global markets had anticipated by agreeing to launch a new programme to potentially buy an unlimited amount of short-term bonds in an effort to resolve the euro-zone’s debt crisis. Investor focus will now switch to the US non-farm payrolls report for August, which was released last Friday, for clues on what shape and form US stimulus measures will take. 

Based on Fed chairman Ben Bernanke’s speech at Jackson Hole, DB believes that the FOMC will issue a strongly worded statement at its September 12-13 meeting indicating that the Fed will keep monetary policy accommodative into late 2015 despite recent evidence pointing to more robust growth. However, this expectation hinges upon DB’s forecast for August payrolls to increase by about 150,000 and the unemployment rate falling back to 8.2 per cent (from 8.3 per cent previously). If there is a sharp negative surprise from the employment figures, say payrolls come in below 75,000 and the unemployment rate rises a couple of tenths, DB expects the Fed to undertake new quantitative easing measurers. 

Although we anticipate some short-term profit-taking after the market’s strong run-up in recent days, we believe Thai stocks, particularly domestic plays, should get support from the Bank of Thailand’s latest economic indicators. These showed that the recovery in domestic demand strengthened in July despite the sharp slowdown in exports. A key driver was a 74 per cent year on year surge in domestic car sales due to the first-time car buyers scheme. We expect growth momentum in domestic consumption to continue at least until the first half of 2013. 

Hence, we continue to favour sectors that are relatively insulated from global headwinds such as banks, telecom, retailers, property and contractors. Telcos are likely to see increased interest ahead of the auction of 3G licences next month and we reaffirm our Buy rating on ADVANC with an upgraded target price of Bt250. Meanwhile our positive view on STEC is reinforced by the AOT’s decision to award it a Bt5.1 billion contract for a new passenger terminal, thereby raising the contractor’s order backlog to Bt65.2 billion. Other stocks in our model portfolio include KBANK, SCB, KTB, TUF, CPN, MAKRO and MINT.