Volatility in SET likely to continue this week

This week, the following three factors will likely affect the SET Index.

Those that saw relatively sharp drops in net profit QoQ and weighed considerably in the market earnings include the energy and transportation groups. The energy sector announced net profit of Bt26.6 billion in total, down Bt47.9 billion, due to the large amount of stock loss and foreign exchange losses. The transportation sector reported total net profit of Bt6.98 billion, down Bt9.76 billion, due to THAI’s Bt8.4-billion loss. Of THAI’s total loss, Bt3.5 billion came from operating loss, Bt4.2 billion from forex losses and some from record of airplanes’ impairment.

The listed companies’ first-half earnings totalled Bt411 billion, up 18.4 per cent YoY. This accounts for 46.3 per cent of this year’s estimated net profit. The research department expects to see listed companies report net profit of Bt890 billion this year.

In the second half, there are concerns over the earnings of the two main industries: energy, and banking. The energy sector has seen several impact factors on its earnings. Such factors include oil leakage of PTT Global Chemical and a thunder at the PTT fifth natural gas plant’s Waste Heat Recovery Unit. Another concern is commercial banks’ credit slowdowns and loan loss provisions. Such concerns could lead to a cut in listed companies’ estimated earnings, which is expected to grow 23 per cent this year, and pressure the SET Index.

 

Rising energy price 

The global economy is recovering. Now is the US driving season. This could prompt higher demand for energy, while supply remains tight from problems in oil fields and oil supply routes in the Middle East and North Africa. The drop in US crude stock also fuels supply pressure. Such situations boost the global crude prices. Dubai crude rose above US$108 per barrel, higher than energy-stock analysts’ forecast at $100 per barrel. This is good news for PTTEP (future [email protected]), our top pick. BJI’s coal price, as of August 15, 2013, rose to its seven-week high of $79.10 per tonne from $76.75 per tonne on August 8, 2013. Global credit rating agency Moody’s upgraded its view for the coal industry to “stable” from “negative”. In the next 12-18 months, the coal industry is expected to improve from its current bottom, according to Moody’s. The US power plants are forecast to use coal at 40 per cent of total fuel in 2014 from 37 per cent in 2012. This will benefit BANPU(FV@Bt352). 

 

QE concerns

The US economy is expected to recover consistently and the likely tapering of quantitative easing at the September 17-18 Federal Open Market Committee (FOMC) meeting could be a point to pressure and move global stock markets with volatility. The Thai bourse is expected not to see high volatility thanks to the previous round of net Bt100-billion foreign selling. This is based on an assumption of no political violence or change in the country. 

 

Chaiyaporn Nompitakcharoen

Head of tactical research

Bualuang Securities

 

The SET remained in the doldrums last week while investors had digested second-quarter earnings results and analysed the second-half earnings outlook.

Projections of corporate earnings are expected to be cut, which is partly due to slow consumption and delay in investment. The passing of a Bt2-trillion borrowing bill may become a catalyst next week for the SET to swing up, albeit in a small way. Concern over US QE downscaling and the unfavourable political climate now do not favour the SET to have a strong rally. Looking forward, companies whose earnings tend to move towards the high season should be attractive for accumulation. However, we remain cautious on market risks given the forward price-to-earnings ratio of 14 times for 2013 does not offer a strong buffer to the downside. Stock picks are BTS, BECL, SIM, and HEMRAJ. 

 

Kitpon Pripisankit

Strategist

Kasikorn Securities

 

The SET Index increased 1.87 per cent on the first trading day of last week amid easing concerns over political developments and expectations that China’s economy had already passed its bottom with a chance of recovery in the latter half of this year. China saw higher-than-expected new yuan-loan expansion and consistent growth in manufacturing output and retail sales in July. However, late last week, the SET Index and stock markets across the globe scaled back on market expectations of the reduction of US bond purchases from $85 billion per month to $60-$65 billion per month at the FOMC meeting on September 17-18. 

We expect the SET Index to see volatility this week from:

_ Concerns over the Fed’s QE cut that could prompt greater stock market volatility. (The VIX Index increased more than 12 per cent late last week.) The Fed will report its minutes of the previous FOMC meeting in the middle of this week and the market could see negative sentiment. 

_ Thailand’s announcement of its second-quarter GDP, which is expected to grow at a low level. 

_ Satisfactory or higher-than-expected manufacturing purchase indices of China and the euro zone could fuel concerns over the QE’s tapering in the short term. 

 

This week’s investment strategy should be to pick laggard stocks with positive and/or interim dividend payment to cope with the SET Index’s volatility. If Thailand’s MPC decides to leave the policy rate unchanged at 2.5 per cent with a signal for rate pause at its meeting on Wednesday, interest-sensitive stocks in the property, banking and hire-purchase sectors will see recovery in prices and that will give a chance for speculation in KKP, TCAP, KTB, AP, PS and LPN. 

Stock picks: KCE, BTS, TICON, KKP, TTA, NMG and SPALI.