Volatility to continue this week

Political factor: More severity is expected. A major event is the opening the House of Representatives’ general debate on August 1, 2013 with major agenda for consideration. Such agenda include the amendment of the Constitution, drafted indemnity act, consideration of the national budget, the drafted act to empower the Ministry of Finance to make Bt2-trillion borrowings and a no-confidence motion. There remains concern if the national budget and the drafted act to empower the Finance Ministry to make Bt2-trillion borrowings do not pass the House of Representatives and take effect in time, that could affect expectations on Thailand’s GDP growth. It is necessary to use expenses for public investment to stimulate the Thai economy in the latter half of 2013 after domestic consumption is slowing down. More negative political developments could affect confidence in investment and stock market trading.

Economic factor: Concerns have been easing on the likely reduction of US bond purchases and the end of US quantitative easing after foreign investors were net sellers of Thai stocks worth more than Bt80 billion. This could be seen from lower sales now. From now on, capital is expected to follow more on the economic figures. Interesting issues include the next Monetary Policy Committee meeting with expectations to hold the policy rate and revise down estimates of Thai growth in 2013 after several agencies’ recent downward revision of Thai growth. This week may not see any new developments from other countries. However, more focus is on China’s economic figures. Decline in China’s Purchasing Managers’ Index (PMI) was announced last week.

Strategy: The SET Index will continue to move with volatility this week. More stocks with sound fundamentals and prices below fair value are seen. This is a good opportunity for medium-to long-term investors who want to accumulate stocks for long-term investment. About 40 per cent of a portfolio is suggested as stocks. Stock picks in the energy group are PTTEP (fair value Bt188) and TOP (fair value Bt77.83). ICT stock picks include INTUCH (fair value Bt122), while the construction group has STEC (fair value Bt31.65) as top pick. Trading pattern holds relatively high risk with difficulty to make profits. Only a slight amount of investment is suggested for trading.

 

Chaiyaporn Nompitakcharoen

Head of tactical research

Bualuang Securities

 

The Thai stock market lost 1.27 per cent last week, as market volatility was declining. Even though the SET was lost last week, our risk to reward remains positively biased. Why? 

1) Investors are recalibrating their views of the US Federal Reserve’s exit strategy from quantitative easing (selling has eased), money has been shifted back to equity. 

2) US 10-year bond yields overhanging at 2.51 per cent having overreacted to Ben Bernanke’s earlier comments, in fact the US has low inflation risk, and the US Fed is not ready for rate hike, so bond yield is expected to move down, 

3) An attractive market valuation at forward price to earnings ratio of 12.7x relative to earnings growth of 24 per cent. 

4) Our model points to market risk declining. As such, we remain positive about the market outlook for this week. Stock picks are KBANK, INTUCH, BECL, BTS, and MAJOR.

 

Kitpon Pripisankit

Equity analyst and strategist

Kasikorn Securities

 

The Thai stock market fell almost all of last week, given foreign selling in both equities and bonds. The SET Index made a rebound last Friday, given the ECB’s signal to hold its benchmark rate low as long as needed, which gave investors’ confidence that Europe’s problem will not become an issue now. In the past two weeks, TIP’s stock markets underperformed other stock markets in Asia and the world due to the economic slowdown and capital flee from emerging markets. In Asia, the stock market in Hong Kong, where its currency is tied to the US dollar, performed better than those in Asia, reflecting foreign investors’ positive sentiment to US dollar assets. 

This week, the Thai stock market is expected to be volatile. If the employment (excluding agricultural sector) figure is announced satisfactory, concerns will likely rise on reduction of the US quantitative easing. The Fed members are scheduled to convene on July 29-30. Higher risks are seen in Thailand. The MPC meeting is scheduled on July 10. The monetary authority will find itself in a dilemma. If it cuts the policy rate for the economic stimulus, that could signal market concern and discourage foreign investors’ baht holding, which could lead to more capital outflows. If the MPC does not slash the rate, the economy may lack momentum. Therefore, the MPC meeting result is a risk to investment in the short term. We expect the Thai stock market to move in a range of 1,400-1,470 points this week.

Investment strategy: Decline of bond yield encourages speculation in commodities. Several commodity stocks have cheap valuations. Thus, investors could speculate in this group’s stocks like PTT, PTTGC. Sound-fundamental stocks with upward revision of earnings or opportunity for upward revision or interim dividend payment include KTB, SCB, TICON, SPCG, AP and MC.