Easing of monetary policy to boost SET

Hopes have been renewed that Asian stock markets will be driven up by excess liquidity after monetary easing in many countries. This began with the European Central Bank cutting its benchmark rate by 25 basis points to 0.5 per cent and signalling a possible lowering of the rate to below 0 per cent if necessary. Central banks in India, Australia and South Korea also cut their benchmark rates to pursue economic stimulus. 

Side effects have unavoidably followed, with capital flowing into risky assets. While several Asian countries have cut their rates, Thailand maintains its policy rate. The Kingdom could remain a target for capital inflows, pressuring the baht. This could put pressure on the Bank of Thailand (BOT)’s Monetary Policy Committee (MPC) to slash the policy rate at its next meeting on May 29. 

Today, the Ministry of Finance will meet with officials from the BOT and the Federation of Thai Industries. The meeting is expected to focus on assessment of data and possible impacts of the May 29 MPC meeting. If the MPC cuts the rate, the stock market will benefit, given the wider gap of returns on investment between stocks and bonds. Thus, there could be some capital moving into the stock market, which could see the Stock Exchange of Thailand (SET) Index’s price-equity ratio stay above 17 times for another period. The current price-equity ratio is 17.5 times.

Based on data gathered until noon on Friday, it was found that 105 listed companies announced their earnings performance. Most of them were large companies in the banking, communications, energy-petrochemical and construction-materials sectors. Net profit totalled Bt140 billion, up 21.5 per cent year on year and 14.3 per cent quarter on quarter. 

This high growth helped push up the SET Index in the past one to two weeks. 

 

Investment themes

This week the SET is expected to continue to see volatility. An option for investors is to select stocks for trading based on first-quarter earnings announcements. This week will see small and medium-sized companies making performance announcements, which may not affect the whole market, but could stimulate individual-stock trading.

Our stock pick is AMC (fair value Bt5.12). In the first quarter, it is expected to see net profit double from the same period last year. The current stock price remains below fundamentals. Its price-equity ratio is below eight times with dividend yield of higher than 6 per cent. We also recommend stocks that will be added to the SET50. Another stock pick is CK (fair value Bt30.74), based on the bright prospects for the construction business.

 

Chaiyaporn Nompitakcharoen

Head of research,

Bualuang Securities 

 

The Stock Exchange of Thailand (SET) gained a further 2.8 per cent week on week, as market risk diminished. Easing monetary policy by major central banks and better-than-estimated earnings drove global stock markets last week. 

Last Thursday, US jobless claims were down for the third straight week, 12,000 lower than the consensus estimate of 335,000. This number offers solid signs of improvement in the US labour market. 

For Thailand, stock market concerns regarding measures to deal with the baht’s appreciation have been eased as four measures proposed by the Bank of Thailand are mainly focused on the bond market. 

We expect the SET to rise to test its major resistance of 1,680 in the next couple weeks, as it passed through the psychological barrier of 1,600 quite easily. Apart from the baht appreciation, we don’t see any major negative news to pull market down at moment. We recommend a selective-buy strategy. Our top picks are AH, MAJOR, AS, KAMART and CPN.