Good time for stock accumulation amid selling pressure

The SET Index dropped 1.98 per cent from the previous week to close at 1281.81 points amid concerns that the 3G bids might be cancelled. Proceeding with a new round of bidding might take time, so the stock prices of all mobile operators reflected the risk of a licence postponement.

The selling pressure on mobile operators is not over yet, in our opinion. However, we think that investors are keen to switch from ICT to other sectors until the overhanging issue regarding 3G licences is unlocked.

If that is the case, the Thai stock market will be in the middle of sector rotation and portfolio rebalancing, resulting in a moderate correction of the stock market as a whole for the coming weeks.

Which sectors could gain exposure at the expense of mobile operators? According to our research team, the earnings outlook for domestic plays is expected to grow well this quarter and next year while commodity-related plays should lag. As such, banking, food, commerce, media, leisure and tourism should become beneficiaries of fund switching. Our picks are KBANK, SCB, CPF, CPALL, MCOT, MAJOR and ERW. 

 

KIATKONG DECHO

Head of retail research

CIMB Securities (Thailand)

 

Despite the recent sharp falls in the stock prices of petrochemical 

 companies, their third-quarter earnings are expected to be satisfactory. 

However, buying in these stocks remains light on expectation of fluctuations in oil prices this quarter. The market expects the price of Brent crude to move in a narrow range because at current levels, sufficient supply is guaranteed and this should not disrupt global economic recovery. Also, oil production of non-Opec countries will increase next year. 

This week, the stock market is likely to be volatile even without new negative factors. Besides, the SET Index has not fallen sharply enough to attract buying.

On October 31, the Bank of Thailand will release public investment figures while the US will declare its Chicago PMI /ISM Manufacturing PMI/Non-farm payroll and unemployment rate. Thus, some rebounds may be seen but not enough for the SET to move further. 

In the past seven years, foreign holdings of Thai stocks hit their high of 37.54 per cent of the total in 2007. Then, the ticking sub-prime bomb exploded and selling sprees dragged down stocks worldwide. In 2008, foreign investors dumped Thai stocks and their holdings declined to 31 per cent. Foreign investors, after that, resumed their buying, particularly in the quantitative easing period. The market could rise further, but foreign investors may continue selling more Thai shares to invest in countries that will benefit from the US economic recovery. 

Investors should wait and see and start buying again when the index drops to 1,270 points or lower.

 

SURACHAI PRAMUALCHAROENKIT

Executive director 

Trinity Securities

 

SET’s declines open an opportunity for stock accumulation.

The SET’s falls last week followed global markets’ drops on worse-than-expected earnings of listed companies. We expect this sentiment to be short term. 

We see the SET’s current declines as a chance for stock accumulation as the gauge is likely to move sideways up from the next period to mid-November. The two support factors are the US stock markets’ rises on special dividend payments of listed companies and China’s additional economic stimulus, which is expected to be approved during a meeting of the Communist Party on November 8. 

Next, the US presidential election on November 6 should be followed closely. America might raise its tax ceiling on long-term capital gains and dividend tax next year no matter who wins the race. This will likely become an incentive for listed companies in the US to pay high dividends late this year to lessen shareholders’ tax burden, which may increase next year.

This issue will likely lend support to the US and other stock markets across the world from this week. Stock markets are anticipated to peak in mid-November when listed companies in the US will see XD signs posted on their stocks. 

Our stock picks are those in the residential sector due to both macro and micro support factors. The macro factor is downward interest rates in the country while the micro remains the better earnings momentum in the latter half of this year.

Most residential stocks pay higher dividends than the market average. Usually, high-dividend stocks outperform the market when interest rates are on a downward trend. Thus, we see a drop in these stocks’ prices on short-term profit-taking. Our top picks in this sector are PS, QH, AP and RML.