Post-US election volatility anticipated

The positive factors are that the risk of US Fed policy continuation is diminishing, implying that the US currency should be in a downward trajectory against Asian currencies. The gold price should run up strongly. During the weekend, the key event was the Greek parliament voting for budget austerity next year to comply with the IMF and EC handbook. We see Greece eventually getting new bailout funds since the euro zone is not ready to break up.

For the Thai stock market, the SET may move in a range given the lack of foreign inflows. Our stock picks are HMPRO, AAV, CPN and ROBINS. 

 

 

KIATKONG DECHO

Head of retail research

CIMB Securities (Thailand)

 

Although stock markets reacted very negatively to the US election result, US consumer confidence and employ-ment figures, excluding the agricultural sector, improved sharply. We have to keep an eye on this month’s US consumer confidence. If US consumer confidence declines, we expect the fourth-quarter US economic expansion to face some difficulties on concern over negotiations between newly re-elected President Barack Obama and Congress for a budget cut as the so-called “fiscal cliff” is reached.

We expect stock markets to be volatile after the US election. Problems do not only exist in the US, but also remain in Europe, which saw the Greek parliament vote for the tightening plan and 2013 budget, and Spain plan to receive assistance. 

The two developments have been factored in by stock markets for some time. However, if the results do not go as expected, stock markets may be negatively affected.

This week, the Thai stock market will remain highly uncertain. We expect foreign investors to do more selling as a preparation to moving their capital to higher-return regions. 

Domestic funds and other funds, which recently helped boost the SET Index, may also sell, following likely selling by foreigners. There is a great possibility for the SET to stay at around 1,270 or below.

Volatility remains for the Thai stock market this month due mainly to the following factors:

_ Foreign investors’ likely stock sales;

_ Negotiations on the “fiscal cliff” in the US;

_ Likely eruption of the domestic political situation; and

_ Delay of 3G licensing.

These factors are expected to drive the SET Index down to 1,270-1,250 points. The gauge is expected to reach this week’s highest at 1,300-1,306 points.

 

 

SURACHAI PRAMUALCHAROENKIT

Executive director

Trinity Securities

 

The US election results came as expected. Barack Obama was re-elected as president for another term. The Democrat Party holds a majority in the Senate while the Republican Party controls the House of Representatives.

We expect the looming “fiscal cliff” to put pressure on stock markets next month, as the divided Congress will take time to negotiate the extension of relief measures and legal enforcement.

However, we still see positive pro-spects for stock markets across the globe and the SET this month. The rea-son is that the good news on US listed companies’ special dividend payment 

this month has not been priced in yet. 

This is to help lower their shareholders’ tax burden next year. Thus, we expect stock markets not to end their upward trend for this round on an estimate of the SET Index at 1,340 points late this month.

Another asset that benefits from the US election results – Obama re-elected with a divided Congress – is gold. This is because the likely chaos in the US Congress may become a major factor for credit rating agencies to downgrade the US’ credit rating.

We expect the downgrade to happen in the first quarter of next year. Such risk will likely cause money to move into gold as a safe haven. We forecast the price of gold at US$1,940 an ounce in the first quarter of 2013.

For Thai stocks, we focus mainly on the following groups with their own support:

_ Momentum plays like ITD, THAI and DELTA; 

_ Stocks likely to be selected for the SET50 like KK, TTW and JAS;

_ Residential development and small hire-purchase stocks, which depend on consumption growth in the provinces, like LH and ASK; and

_ Cyclical stocks with high growth potential and cheap prices like PTTGC.