Prepare for market correction

The US Federal Reserve plans to keep QE3 in place until employment improves. The Bank of Japan expanded its bond-purchase budget from 70 trillion yen (Bt27.77 trillion) to 80 trillion yen. China’s central bank also injected 365 billion yuan (Bt1.78 trillion). This marked a historic weekly injection in China.

Market risks exist, though. The Spanish government approved a 2013 budget that aims to reduce its budget deficit by 13 billion euros (Bt517 billion) to keep its fiscal deficit at 4.5 per cent of gross domestic product, compared to 6.3 per cent this year. As bond yield is below 6 per cent, Spain may see no incentive in seeking financial support from EFSF and ESM, the two euro-zone bailout funds. If Spain does not ask for support this week, it would be a big risk, as its long-term credit rating could be downgraded to non-investment grade by Moody’s. This is against the backdrop of slowness in the European Central Bank’s sovereign bond-buying programme.

Meanwhile, the tri-partite Greek government has not yet finalised measures to further cut expenses by another 11.5 billion euros, though the measures must be presented to Parliament early this month. The parliamentary approval is a prerequisite for the new 31.5 billion-euro bailout package from the Troika (the European Union, European Central Bank and International Monetary Fund). 

This week, several countries are due to release production manufacturing indexes, which are likely to fall further. The latest US unemployment rate is also due this week, and it is likely to lead to further disappointment.

Indeed, at the current valuation, the Stock Exchange of Thailand (SET) Index is at an expensive level, with the forward 2012 price/earning ratio at 14.1 times against a 13.1-times median and forward 2012 price-to-book value ratio of 2.2 times, against the 2-times median. As the index is heading to 1,300 points, investors should be careful. 

 

Chaiyaporn Nompitakcharoen

Head of tactical research

Bualuang Securities

The SET gained further ground last week to close at a week high of 1,298.79 due to another round of quantitative easing launched by major central banks to counter the economic slowdown globally. The EU should remain in trouble on risk of a currency break-up, as banking union, fiscal union and political union all appear to be under a cloud. Fund inflows into Asia can be expected, though for now it seems that this capital will flow into the Thai fixed-income market rather than equities.

Export-oriented and commodity-related sectors should be at risk of a disappointing performance as exports shrink. Thanks to consumption and private investment drivers, the Thai economy has recovered well. However, growth from those two engines will not last long next year. So, government spending is expected to be a major theme for future growth. We expect the Thai stock market should surpass 1,300 this week. Our picks are CPALL, SC, LPN, SPALI, AAV and CK.

 

Kiatkong Decho 

Head of retail research 

CIMB Securities (Thailand)

Late last week, global markets rebounded strongly thanks to China’s liquidity injection. The SET Index followed suit, with a strong rebound. Yet, this will not last long, as there are no positive factors to really boost market sentiment. The outlook will be clearer when listed companies disclose the third-quarter financial results and when China announces its latest economic data in the middle of October.

Without strong backup, the SET should brace for volatility this week. We expect positive third-quarter results of stocks in banking, property and retail sectors, which should drive the market. Still, results of companies in the US and Europe should remain dismal. This could shake overall sentiment and hold the Thai exchange hostage. 

In the past two years, hospital and communications stocks have ably withstood market fallout. 

We expect a correction in the SET index this week, as overseas volatility will further influence the Thai market. When the index nosedived from 1,110 points in April 2011 to 1,010 in May, only stocks in the auto parts, communications and hospital were spared. They also gained when all others lost as the index plunged from 1,144 to 855 during October-November 2011. When the market fell from 1,240 to 1,110 in November 2012, hospital, entertainment, food and communications were the least affected. 

If the index is to exceed 1,300 points, it will depend largely on banks’ third-quarter results. For now, safe stocks are in the communications and hospital sectors.