SET may see further rise this week, but risks remain

From September to October 4, foreigners and local institutional investors were net-buyers with net-buy positions of Bt6.28 billion and Bt935 million, respectively. Amid this trend, we found something interesting:

lForeign holdings in Thai shares through non-voting depository receipts (NVDRs) increased to 7 per cent of market capitalisation, the highest ever. Historically, their holdings through NVDRs has never breached 6 per cent. Meanwhile, direct foreign holdings are maintained at 29-30 per cent. Higher holdings through NVDRs could be an indicator that the inflows may be hot money, ready to leave anytime.

lSince August, the SET50 Index has underperformed the SET Composite Index, indicating that small and medium-sized stocks have been major drivers of the market in the past months. 

Risks apparently exist, with indicators of a possible contraction anytime. This week, there would be limited upside for the SET Index. If the P/E ratio is to remain at 15 times until the end of this year that means the index could hit 1,325 points and that represents only a 1-per-cent gain.

Meanwhile, if the SET corrects to 14 times P/E, that represents a 6-per-cent downside risk. For profit, investors should unload shares that are fully valued and pick new shares with low betas and high dividends for their portfolio.

Recommended are ROJNA, KCAR and AEONTS. Some in the property sector also show outstanding performance, but with share prices much below fundamentals, like PS and RML.

 

Kitpon Pripisankit 

Strategist 

Kasikorn Securities

The SET Index last week hit a new 16-year high, due to expectation for more stimulus measures from China, improvement in some economic indicators in the US and China (US jobless data in September were better than expected while China’s manufacturing index expanded for the first time in three months) and expectation that Spain would ask for a bail-out package, which would ease concerns over the euro. 

The Thai market is expected to rise further this week. Speculation is mounting that euro-zone finance ministers who will meet today may announce more measures.

Meanwhile, investors are speculating on third-quarter results of US companies and Thai banks. SCB, KTB and TISCO should release results this week. Still, beware of profit-taking when the index hits 1,320-1,330 points. Still, the correction presents a good chance for buying. Top picks this week are CK, TRC, MALEE, ERW, SC, BECL, SCB, KTB and TISCO.

 

Tisco Securities

We remain positive on the Thai market’s medium-term outlook and have rolled forward our end-2013 SET Index target to 1,450, implying a 2013F P/E ratio of 13.4 times. In the very near term, however, we anticipate a fresh bout of profit-taking following the SET’s impressive gains of 5.8 per cent in September and 10.8 per cent in the third quarter.

The key positive drivers, in our view, are earnings upside for the heavyweight energy sector from the US$25-per-barrel surge in global oil prices over the last three months, the recent resumption of foreign equity flows aided by QE3 and rotation from small and mid caps to laggard blue chips.

Also supportive for the Thai market is its relatively low valuation compared to regional peers despite superior earnings growth and domestic macro resilience to external headwinds. 

For the final quarter of 2012, we see considerable scope and impetus for an increase in foreign buying following a lengthy stretch of tepid activity by foreign funds in the Thai market. Foreigners were net buyers of Bt3.3 billion of Thai equities in September and Bt3 billion in the first four days of October after being net sellers of Bt21 billion in the previous five months.

With small and mid-caps having led the SET’s performance so far this year, we anticipate a natural gravitation of foreign buying towards big caps and a “broadening up” of the rally. Hence, for our top picks we maintain a mix of domestic and external cyclical exposure, adding CPALL, TOP, KTB and MAKRO and maintaining SCC, ADVANC and HEMRAJ in our model portfolio.