All eyes on outcome of the US election on Tuesday night

The SET Index exceeded 1,300 points again. At this level, the investment risk increased due to the market’s P/E ratio of over 15 times. There is not much chance for the SET to stay at this level with stability. For that reason, our recommendation remains at only 40-per-cent equity holding of an investment portfolio. 

This week the following overseas and domestic factors should be monitored.

The US election results will show the direction of US economic policy in terms of how to avoid the fiscal cliff and how long it will take. In the short term, investment sentiment remains positive due to the current honeymoon period and remaining momentum of good economic figures. The number of welfare applicants as a result of unemployment saw the biggest drop in eight months. The unemployment rate is expected to stay below 8 per cent for the second straight month. In the next periods, besides the fiscal cliff issue, the damage from Hurricane Sandy is forecast to cost about 0.3 per cent of the US’ gross domestic product. Such an impact will affect the global and US economic recoveries and listed companies’ earnings.

Domestically, the release of listed real-sector companies’ third-quarter earnings will be a factor. Based on a preliminary assessment, except for consumer-product industries, which will record stock gains to have a high profit base, other industries may not show high-growth figures. Investors should be cautious about the possibility of sales on fact as clearly seen in the banking sector. Banks saw their stock prices drop after reporting earnings-performance results.

Foreign investors’ funds flow is a factor. During the latest net purchase of foreign investors from November, it was found that net purchases peaked in early May. Cumulative net purchases stay at about Bt100 billion. After that, foreign investors were net sellers with cumulative net sales of Bt61.9 billion as of November 1. From now, there is a relatively high possibility of net selling. Based on a quantitative analysis, every November, based on past seven-year data, there is a 71-per-cent probability for foreign investors to become net sellers of Thai stocks. Thus, fund flow remains a risk to investment. 

PTT and TOP are suggested as large market cap stocks due to rising demand for oil during winter. Based on a share price movement study, the stocks usually outperform the market in the fourth quarter. During the last three years, TOP saw a 19-per-cent gain, BCP a 16-per-cent increase and PTT an 8-per-cent rise. The market rose only 7 per cent on average. For medium- to small-market caps, RML, ITD, ASK and AJ are stock picks.

 

Kitpon Pripisankit

Strategist

Kasikorn Securities

 

The SET Index fell slightly last Monday due to overseas investors’ selling spree from the previous week. However, the SET staged a rebound from Tuesday to Friday as the market was less concerned about the global economic slowdown. Economies across the world are likely to stage a recovery this quarter after China’s Manufacturing PMI in October returned to expansion in three months.

The US reported robust economic figures. October’s private employment recorded a new high in eight months. October’s manufacturing index had the sharpest increase in five months. Its consumer confidence index saw the highest rise in four years.

The Thai bourse gained support from foreign investors’ return to net purchases late in the week.

We continue to have a positive market outlook for this week. The SET is projected to move in a range of 1,300-1,320 points. We forecast the Thai stock market to face profit-taking midweek to late this week after the US presidential election tomorrow on concern that the fiscal cliff issue, which may happen early next year, may return if the US leader and the majority of the US congressional members come from different parties after the election.

This week’s stock picks are those gaining momentum for investment and construction after the global economy starts to signal a recovery. The stocks are in the construction materials group (SCC, SCCC, TPIPL and VNG) and construction group (ITD, CK and STEC). Attractive stocks are KTB, TISCO, CENTEL and MINT. 

 

Sukit Udomsirikul

Head of research

Maybank Kim Eng Securities

 

Last week, the SET Index closed at 1,306.60 points, up 1.9 per cent from the previous week thanks to better-than-expected Chinese and US economic data and also local funds were a net buyer. Although the SET recovered, it failed to break the previous high of 1,314 points due to selling pressure in ICT stocks (-4 per cent WoW) in response to overhang from the 3G licence auction, which hasn’t been completed yet. The outperformers are the construction material and petrochemical sectors and the underperformers are the ICT and property sectors. 

This week, the SET is expected to enter a volatile phase as we believe the US presidential election tomorrow will create political uncertainty in the US until the president-elect takes office on January 20, 2013 or there is a sign that Congress can reach an agreement to extent the tax-cutting polices that are scheduled to expire at year-end.

In the short term, according to consensus view, President Obama may win the election and if he wins, investors will turn to focus on how to manage the tax-cutting policies that are scheduled to expire at the end of December, which investors call the “fiscal cliff”. On the other hand if Mitt Romney wins, the global stock market may enjoy a short-term gain due to investors’ expectations that the Republican Party’s policies will be more friendly to the economy. In Europe, the ECB is scheduled to meet on Thursday but we don’t expect any movement from this meeting. We’re still waiting for the troika to approve a new loan to Greece.

Our strategy is to take profit, especially on big cap stocks, if the SET rises above 1,300 points. The entry level is about 1,270-1,280 points and we still prefer sectors that benefit from government spending such as construction materials and property. 

 

Tisco Securities

 

Stronger than expected US economic data last Thursday, coupled with a month-on-month improvement in China’s PMI for October, have helped global markets begin November on an upbeat note. Nonetheless, we expect near-term upside for the SET to be capped by slow progress in resolving European macro issues and continuing uncertainty regarding US economic policy ahead of tomorrow’s presidential election. 

With the 3Q12 reporting season well underway, investors are likely to target stocks that offer long-term earnings resilience and attractive valuations. The recent correction in bank stocks following slightly disappointing 9M12 results presents a good entry point, in our view, particularly for banks with a strong retail base and growing exposure to the underpenetrated life insurance market. KBANK, SCB and BAY are our top picks in the sector. 

Other big cap stocks we like at current levels are SCC and CPALL. SCC is benefiting from growing domestic demand for cement (+16 per cent year-on-year in 3Q12) and a projected recovery in petrochemical spreads in 2013F. Meanwhile CPALL is a key beneficiary of strong consumer spending momentum, aided by its nationwide expansion and stamp promotion programme at 7-Eleven stores. We expect the company to post record quarterly earnings of Bt2.76 billion in 3Q12, up by 6 per cent QoQ and 27 per cent YoY.