Slew of factors cast shadow over the SET

Foreigners have been net sellers of nearly Bt18 billion of Thai equities in the last five trading sessions, with some funds taking profit before the Monetary Policy Committee (MPC) cut its one-day repurchase rate by 25 basis points to 2.50 per cent. The rate cut, which was in line with market expectations, helped send the baht to a four-month low.

It also worsened the outlook for the banking sector, which is currently being weighed down by unfavourable net interest margin/earnings for the second quarter. Although our banking analyst is still long-term bullish on the sector, she does not expect banks to outperform the market in the short term. Her top near-term picks are TCAP and KK (direct plays on lower interest rates) and SCB (secured earnings in 2Q13).

One sector of the Thai economy that is thriving is tourism. According to the Tourism Authority of Thailand, foreign tourist arrivals in the first four months of 2013 surged by 19 per cent YoY to 8.8 million. The increase is being led by spectacular growth in visitor numbers from China (+93 per cent YoY in the first four months) as well as double-digit growth in tourist arrivals from the next four largest markets: Malaysia, Russia, Japan and Korea.

A major beneficiary of the tourism boom is AOT, for which we have raised our target price by 42 per cent to Bt235 after revising up our 2013-15 earnings per share forecasts by 4-13 per cent and rolling over our valuation to 2014. We have also upgraded our rating on MINT to “Buy” and raised our target price by 41 per cent to Bt31 based on the brighter tourism outlook (and hence a valuation upgrade for its hotel business).

We continue to favour selective telecom stocks, notably INTUCH, to reflect stronger margin prospects as a result of regulatory cost reductions. Our other top picks include CPN, STEC, AMATA and QH. 

 

Natwarin Tripobsakul

Vice president

Research Department

Trinity Securities

 

We expect the Japanese and Thai stock markets to not really rally until yields on Japan’s 10-year government bonds are lower to the normal level of 0.6-0.7 per cent. Now, yields on Japanese bonds remain high, encouraging more capital to move from equities to bonds. Given the narrower gap between Thai bond yield and Japanese bond yield, capital will move from the bond markets, including the Thai stock market, and cause appreciation of the Japanese yen. 

We expect that finally the Bank of Japan (BOJ) will raise its purchase of government bonds to lower bond yields to the normal level. This will become a trigger point for stock markets to rally. The BOJ meeting on June 11 will need to be monitored closely. 

We do not agree with market fears of the Fed lowering the QE amount in the near period, given:

1) high cost of public and private borrowings after yields of the US bonds rose to a record in 14 months;

2) US inflation expectations continued declining, putting the US at risk of deflation. With this, excess liquidity in the system continues to drive the SET Index to rise to 1,800 points.

 

Investment strategy: The SET is expected to move sideways and be volatile. Accumulate stocks at the support level of 1,570-1,580 points. The SET Index is expected not to stay lower than 1,550 points in this round. 

Stock picks for June:

1) Stocks with satisfactory earnings performance in 2Q13 like ASP

2) Stocks which are expected to be included in the SET50 like CENTEL, GLOBAL and CK.