High liquidity to keep SET on upward trend

As result of the improved US economic conditions, it seems that funds shifting into the US equity market are increasing in terms of momentum. In contrast, funds flowing into Asian equity markets are gradually slowing. We believe investors remain cautious over market direction and upside potential. However, excessive liquidity can sometimes drive stock prices to be overvalued, from the angle of fundamentals. Without a negative surprise, local liquidity could drive stock prices further upward. Regarding the market capitalisation-to-local liquidity ratio, the Thai stock market could reach our year-end 2013 target of 1,650 soon. Our picks are WORK, MCOT, TCAP, BH, AAV and SCC.

 

Therdsak Thaveeteratham 

Senior vice president

Asia Plus Securities

 

The SET Index may stay at a price-earnings ratio (PER) of 18 times for a period, supported by excess liquidity, which continues to drive the SET. That could push the Thai stock market’s PER up. If the SET reaches 1,600 points, the current market PER will go up to 17.98 times, the highest since the 1997 Asian financial crisis. From 1993 to 1996, when the Thai economy saw many bubbles, foreign capital flowed into the country’s property and stock markets in the forms of short-term borrowing and speculative money. The SET Index traded at a PER of 18-22 times for a long period. However, when the foreign capital flowed out from 1997 onwards, as Thai exports shrank suddenly, a downgrade of Thailand’s credit ratings, financial institution problems and an attack on the baht dragged down the SET Index dramatically. 

Now, unlike the 1997 crisis, a large amount of foreign capital is pouring into the Thai economy, while Thailand has earned an upgrade of its credit ratings. There is no indication of capital outflow in the short term. Thus, it is possible the SET Index will maintain its PER at 18 times for a period. At a PER of 18 times, the SET Index would be equivalent to 1,628 points at the end of March and 1,724 points at the end of June.

This week could see the following external factors: Haruhiko Kurada will be appointed as the new Bank of Japan (BOJ) governor on market expectations of a sudden easing of monetary policy at the next BOJ meeting on April 3-4. Such monetary easing could be done through an increase of the money supply in the system and cause Japan to see inflation of 2 per cent. In the US, indicators for new and old houses are expected to continue their recoveries, which could be positive factors in the short term and throughout this week. At the EU Summit on March 14-15, the main issues involved finding solutions to the economic slowdown and stimulus for the labour market, particularly for Spain, where the unemployment rate is 26 per cent. No impact factors are seen affecting the Thai stock market this week. 

This week’s investment strategies focus on short-term trading rather than stock accumulation in portfolios for long-term investment. At a PER of 18 times, stocks are viewed as expensive compared to their fundamentals. As the market is being driven by excess liquidity, trading should only be made for two groups of stocks: construction and ICT. Construction stocks see positive factors including upcoming projects and expectations of improved earnings performance. Stock pick: STPI (fair value at Bt122.50). The ICT sector has begun to experience positive factors from the upcoming launch of 3G communications services. Stock pick: INTUCH (fair value at Bt98). 

 

Kitpon Pripisankit

Vice president

Research Department

Kasikorn Securities

Although the Thai stock market has experienced volatility due to the slowdown in European manufacturing figures and China’s higher-than-expected inflation, satisfactory US economic figures – including non-agriculture employment, retail, and unemployment benefits – still prompted the SET Index to climb 1.99 per cent, or 31.21 points.

This week investors need to monitor the following factors: the effects of the March 14-15 EU Summit, the US’ Federal Open Market Committee meeting on Wednesday; China’s HSBC Flash Purchasing Managers Index; and Europe’s Purchasing Managers Index on Thursday. The SET Index may see some volatility at 1,600 points. However, we expect to see sideways movement from now to the middle of this year. KS Research maintains its positive view for medium- to long-term investment in equities. The SET Index is targeted at 1,700 points in 2013.

On investment strategy, now is the period for window-dressing for the first quarter, so speculation focuses on laggard big caps, which are expected to be targets for institutional investors who are switching (selling stocks with greatly increased prices and buying stocks with slightly increased prices). Such stocks could be targets for foreign purchases after signs of net foreign buying and baht appreciation late last week. Stock picks: SCB, DTAC, TISCO, ADVANC, PTTGC, PTT and CPF. Stock picks for small caps: TTA, MK, JAS and CCET.