SET likely to fluctuate amid mixed political outlook

For the rest of this year, the economic situation and political developments seem to be undivided. This is because the economy needs the government’s invest-ment as a stimulus after house-hold consumption slowed. State investment will start when the expenditure budget bill and the bill authorising the Finance Ministry to borrow Bt2 trillion pass Parliament. 

However, the coalition parties decided to bring the indemnity bill, which sees relatively different views, up for consideration in the general debate on Wednesday. This could aggravate the negative political sentiment, fuelling concern that the economic bills could face difficulty.

With such concerns, the SET Index, from July 24, when the government whip decided to put the indemnity bill at the top of the agenda, to July 31, one day before the general debate, plunged more than 110 points as measured from the days’ nadir. The political risk has been priced in mostly. The political development will not prompt the SET Index to drop much if there is no more negative political development. Basically, the SET Index, at 1,400 points or a P/E ratio of 13.4 times at year-end, could put up with this pressure.

There is no new external factor this week, after the release of economic figures and the holding of major meetings last week. Overall, the SET Index is expected to move with relatively high volatility. 

There is a high risk of short-term speculation with relatively difficult profit-taking. A proper investment strategy should focus on the gradual accumulation of stocks with strong fundamentals and upside risk rather than high fair value. About 40 per cent of an investment portfolio should be in stocks.

The ICT and construction industries shine.

Net profit of the ICT group looks set to grow at a high rate from 2013–14 due to the transition of cellular service from 2G to 3G. When the NBTC increased MNP to 300,000 per day, that lowered operators’ service costs and raised income per number. Stock pick: INTUCH at fair value of Bt122.

The construction group: This group is expected to enjoy a profit uptrend for in the next two to three years as 11 listed operators are sitting on a combined backlog worth nearly Bt500 billion. This combined backlog comes with high gross margins. However, their stock prices may be pressured from political concerns. Stock accumulation is suggested when prices weaken. Stock pick: STEC at fair value of Bt31.65.

 

Chaiyaporn Nompitakcharoen

Head of tactical research

Bualuang Securities

 

The SET lost 3.8 per cent to close at 1420.94 points amid moderate turnover due to concern over the resurgence of political risk. Funds flowed back into Asian equity markets after the US Fed pointed out that the US economic recovery remains weak. US inflation has been below the 2-per-cent target and the labour market is improving. It is insufficient for the US Fed to downscale QE as soon as the market expects. 

Despite impressive growth in 2Q13 results for Thai corporations, it appears that concern over political confrontation on the streets in the next few weeks outweighs good earnings prospects. 

Looking forward, our corporate earnings survey indicates that 3Q13 results should grow year-on-year but slide from the last quarter. According to historical data, the Thai market usually sells at a moderate discount to Asean during political upheavals. Last week, it was obvious that the Thai stock market started pricing in that risk factor and caused the valuation gap to the region to widen. However, the gap still seems to be too small, which does point to a potential downside. Therefore, we suggest staying with low beta stocks that produce good dividend yields. 

Stock picks are BTS, BECL, MAJOR and BEC.

 

Kitpon Pripisankit

Strategist

Kasikorn Securities

 

Early last week, the SET Index plunged to 1,403.08 points, or by 4.99 per cent from the previous week, due to political pressure after the government’s declaration of the Internal Security Act in three districts of Bangkok from August 1-10. This has given investors concerns over likely more violence during a political gathering. 

However, the SET rebounded late last week after the Fed maintained its fed funds rate at 0.25 per cent and continued its QE as a stimulus, and there was a sign of a global economic recovery. That brightened investment sentiment across the globe. 

However, concerns over a weekend gathering of people against Thaksin Shinawatra prompted selling last Friday, causing market volatility before it closed last week at 1,420.94 points, down 3.8 per cent from the previous week.

Despite concerns over the QE’s tapering ease and positive figures for the global economy, we continue to see net foreign selling and asset reallocation into developed markets, and that pressures emerging-market stocks. That, combined with political concerns and rumours over possible violence, is expected to cause the SET Index to fluctuate in a range of 1,400-1,440 points. 

If the gauge drops more than the lower range, the SET is likely to test 1,370 points soon.

Investment strategy: Gradual accumulation is recommended for stocks whose prices fall sharply. Such stocks include those in the banking, energy and property sectors or those with high interim dividend payments. When the stock market falls, that opens a chance for the accumulation of quality names like KTB, SCB, PTT, PTTEP, LPN and LH.