SET likely to gain ground, but volatility will remain
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The market looks poised to claw back some of its recent losses following the easing of political tensions after anti-government rallies in Bangkok passed off peacefully last week. Despite heated debate, the amnesty bill passed its first House reading by a
Tisco’s economic team believes that the chances for the amnesty bill to become law remain dim given various legal challenges and rewriting. It thinks that the government’s push for an amnesty law is aimed at regaining red-shirt support and deflecting public and media attention.
In the view of Tisco’s Economic Strategy Unit, the main government focus is on the fiscal 2014 budget and Bt2 trillion infrastructure bills. With high expectations of public investment and a possible election in early 2015, further delays in infrastructure projects could damage the Pheu Thai government’s popularity.
Although the government has now revoked the Internal Security Act in three districts of Bangkok, political noise is one factor likely to keep Thai equities volatile in the weeks ahead.
A market recovery will be capped by uncertainty over QE tapering. Investors should note that recent data indicate that the US labour market is on the mend and that QE tapering could begin after the September 17-18 FOMC meeting.
Second-quarter results are also unlikely to provide a positive catalyst, with earnings of big caps such as ADVANC, PTTGC, TOP, CPF and CPALL falling below market expectations.
We maintain our selective buying strategy, with INTUCH, SCC, STEC and CK among our top picks. Bank stocks could get a short-term boost ahead of the declarations of semi-annual dividends later this month. Our top picks in the sector remain TMB, SCB and BBL.
Trinity Securities
The SET should benefit from political relief and the “Thailand Focus” theme.
The domestic political situation improved after the House approved the first reading of the amnesty bill without any chaos or violence. The government also announced its lifting of the Internal Security Act beforehand.
We expect the capital markets’ positive sentiment to continue in the next periods, while the bill for Bt2 trillion borrowing in the second and third readings is expected to gain approval on August 14-15. That could support the investment climate then.
The political disturbances are expected to return from the end of this month to early next month after the amnesty bill enters its second and third readings.
Based on our study, from 2004, the first year the SET organised a seminar on “Thailand Focus,” the SET Index gained then, particularly one to four weeks before the event. During that period, the SET Index rose 4.7 per cent on average. Foreign investors’ net purchases averaged over Bt20 billion in about one month before and after the event.
This year, Thailand Focus will be held from August 28-30. We expect the SET Index to gain from the event in the next one to two weeks.
Be careful of analysts’ consistent cuts of their listed companies’ earnings estimates. The cut was made for the seventh straight week. Such downward revision was seen in industrial materials and machinery, automobile, food, household utensils and hospital sectors. We recommend underweight or avoid investment in these sectors.
We maintain our forecast for the SET to move in the range of 1,400-1,520 points this month with more upside risks. We overweight the communications sector (INTUCH, ADVANC), hotel sector (ERW) and electronics component sector (KCE).
