Volatility likely amid uncertainties over baht

Last Thursday, the market reversed early gains following speculation that the government planned to remove the BOT governor. This was later denied but the BOT chairman warned that the current working relationship between the government and the bank was untenable. 

Global market sentiment last week was hurt by weaker-than-expected Chinese purchasing managers index (PMI) data and disappointment with US employment reports and the Federal Open Market Committee (FOMC) statement. However, risky assets later firmed after the ECB delivered a 25 basis points rate cut and US initial jobless claims unexpectedly declined.

Meanwhile Thailand’s headline inflation rate in April came out at 2.42 per cent (vs 2.69 per cent the previous month), considerably softer than our expectation and consensus estimates of 2.7 per cent. Despite a reduction in inflation pressures, Tisco’s Economic Strategy Unit expects the central bank to keep a neutral stance rather than adopt an easing bias given that the BOT has become more focused on risks towards financial stability than risks to inflation and growth. We anticipate further trading volatility in May and continue to advise using market dips as buying opportunities. 

In the banking space, SCB and BBL remain our top picks while TCAP is now our favourite among lower-tier banks. Note that we have revised up our 2013-15 core earnings for TCAP by 4 per cent on average and raised our target price by 24 per cent to Bt51 to reflect the projected improvement in its balance sheet and additional loan-loss-reserve buffers after it books a Bt9.7-billion after-tax gain from the planned sale of Thanachart Life in the second quarter of 2013.

We have also upgraded our target price for AOT by 18 per cent to Bt165 to reflect our 5-7-per-cent upward revision for passenger traffic and aircraft landings in fiscal year 2013-15. This follows strong passenger growth in first half of fiscal 2013 (plus 23 per cent to 21.5 million) and the solid outlook for Thailand’s tourism industry. Elsewhere, we continue to see decent value in selective stocks in the property, ICT and energy sectors. Among our top picks are CPN, INTUCH, DELTA, TOP, AMATA and LH. 

 

Nuttachart Mekmasin

Research analyst

Trinity Securities

 

In May, Trinity expects the SET Index to move sideways up or down amid market concerns over likely measures to restrain the baht.

This month’s support factors are: 

1 The successful formation of a government in Italy. It seems to unlock the political vacuum of over two months.

2 The European Central Bank’s move to cut its benchmark rate and the possibility of lowering deposit facility rates paid to commercial banks that parked money with the ECB to the minus level in the future. 

3. Minutes of the previous FOMC meeting that will be disclosed on May 23.

Risks that need to be monitored closely are:

1 The financial authorities may launch measures to restrain the baht. They could be rate and non-rate measures. (If there is a launch of measures, we see this as an opportunity to buy stocks.)

2 The economies of major powers like the US and China may slow down in the second quarter compared to the previous quarter. (This is reflected in the slowing ISM and PMI.)

3 The deadline for the US to raise its public debt ceiling before May 19. (This could be postponed for one to two months.)

Investment strategy: The SET Index may be faced with a psychological selling spree and sales by local trigger funds after rising to test the 1,600 level. 

Trinity expects trigger funds worth about Bt1.5 billion to Bt2 billion planning for closes if the SET Index rises to 1,600 points again. Thus, the stock market may move with relative volatility during the day. We see waiting to buy in corrections during the day as an attractive investment strategy.