Concern over central banks' policies

This week, the SET Index will likely be driven by two issues: the Monetary Policy Committee meeting, and political developments. 

With low inflation, lower-than-expected GDP growth and the baht’s appreciation – which has caused export slowdowns – most investors expect the MPC to slash the policy rate from 2.75 per cent. Some organisations suggest a rate cut of one percentage point to slow the baht’s appreciation.

Such expectations are priced into the SET Index. If the MPC meeting does not produce a rate cut, or produces a less-than-25-basis-point cut, it is possible that we will see profit-taking, which would drive down the SET Index.

Politically, there are factors with the potential to heat up, pressuring the stock market. Major issues include support for reconciliation legislation introduced for parliamentary consideration. Which draft bill will be proposed is an issue that needs monitoring. This is relatively sensitive issue. Another is the Constitutional Court’s consideration of a complaint about a proposed amendment to the Constitution’s Article 68 (which concerns permissible channels for taking a case to the court). This issue has previously led to a protest in front of the court. The impact of any further protests must be monitored. 

Based on these factors and the PE ratio above 17 times the market ratio, this week’s investment strategy is to pick up stocks for short-term speculation. Bumrungrad Hospital (fair value Bt102) is viewed as a laggard in the hospital group, as its PE ratio is lower than the industry average. BH is expected to see profit growth in the second half due to the expansion of services for its out- and in-patient sections.

PS (fair value Bt34.50) is also picked. Starting with the second quarter, it is expected to see consistent growth due to its approximately Bt10-billion backlog of ready-to-be-transferred condominiums and income realisation for the rest of this year. Its low-rise projects have also seen satisfactory sales. 

 

Chaiyaporn Nompitakcharoen

Head of tactical research

Bualuang Securities

The Stock Exchange of Thailand (SET) retreated after hitting a new high of 1,649.77 last week following surprising news that China’s manufacturing PMI fell below 50 (indicating contraction for the first time in seven months). It is true that the SET has performed well this year. Year-to-date, returns have hit a high of 18.5 per cent, which is pretty good relative to returns on other assets. First-quarter earnings for the SET grew 11.6 per cent over same period last year but were moderately below market expectations. Again, the Thai stock market has reached a point where market valuation (forward price-earnings ratio of 14.9 times) is a key concern. The US dollar index has spiked on disappointing economic data in Europe and Asia, implying buying orders from foreign markets may pause. Our risk index remains high, indicating more price fluctuations ahead. Thus we expect that the SET could drop further with support at 1,550, while upside is limited to 1,615. Stock picks are BGH, MAJOR, MINT, KKC and BECL. 

 

Kitpon Pripisankit

Strategist

Kasikorn Securities

The Stock Exchange of Thailand (SET) Index rose early last week after the US reported its May consumer confidence index was at its highest level in six years and investors’ concerns over the US sequestration eased. The gauge increased to test 1,650 points before dropping late last week after the Bank of Japan decided to maintain its quantitative easing (QE) and the view of the Japanese economy turned more positive. That prompted a selling spree in Japan’s bond market, causing 10-year bond yields to rise to their highest level since April 2012. The Nikkei index plunged 7.3 per cent in one day while the Japanese yen weakened from 103 per US dollar to 101. Simultaneously, investors remain concerned over QE in the US, which may lower Treasury purchases at the Fed’s June meeting. 

We expect stock markets across the globe to remain highly volatile. The yen’s appreciation is an obstacle for the yen carry trade, which has driven Asian stocks upward in the past seven months. Thai stocks remain at risk of profit-taking for a period. The stock market may be pressured to test 1,530-1,550 points. The declines provide purchase opportunities. We see stocks as the most attractive financial assets. The Thai stock market is expected to rise, with the SET Index’s targets at 1,700 and 1,900 points in 2013 and 2014, respectively.

Investment strategy: Stock accumulation and passive purchases. Focus on cheap valuations. That will help protect the downside risk of investment. Stock picks are BAY, BECL, SPCG, GFPT, MALEE and TK.