Fed's QE stance expected to reduce SET volatility

Foreigners were the largest net buyers (Bt20 billion). Local funds and brokers’ proprietary traders were also heavy net buyers. Retail investors were net sellers (Bt 43 billion), given profit-taking during the period. The MSCI AC ex-Japan Index gained 5.3 per cent. The outperforming sectors were Property (23.9 per cent), Tourism (21.6 per cent), Banking (19.6 per cent) and Commerce (19. per cent). Sectors which underperformed were Energy, Petrochemical and Food.

At the macro level, the outlook remains gloomy. There have been talks of higher rejection rate for loan applications, as banks tighten their underwriting standards on one end. At the other end, consumers are losing confidence and purchasing power as debt level builds up. Our gross domestic product (GDP) growth forecast remains at 4 per cent for 2013, but there is increasing pressure for a further cut to the growth, given the lack of economic stimulus as the budget disbursement has been too slow and exports have remained weak.

We expect risk appetite to continue improving, but the market should remain volatile albeit less than before, when QE tapering fears haunted the market. We believe the weak economic prospects have been priced in and stocks could continue to rebound selectively. The timing of the Bt2.2 trillion infrastructure bill remains uncertain, but once approved, it will be a main catalyst for related sectors such as banks, building materials and construction.

Our preferred stocks, among others, include INTUCH, AOT and KBANK.

 

Tisco Securities

The SET has rebounded 17 per cent since its recent low in late August thanks to the resurgence of fund flows into emerging markets. Foreigners have been net buyers of Thai equities in nine out of the last 10 trading sessions, raising their cumulative net purchases month-to-date to Bt19.3 billion after a net outflow of Bt40 billion in August.

Our recently revised year-end SET Index target of 1,420 points now looks too conservative given the Federal Reserve’s surprise decision to leave the pace of QE unchanged at US$85 billion a month. Deutsche Bank economists now expect tapering to begin in December but note that the US economic recovery will likely have to accelerate before the Fed starts to reduce QE3. Sentiment has also been boosted by other external factors, including: 1) improving economic data from Europe, China and Japan; 2) the US-Russian deal on Syria’s chemical 

 weapons, and 3) the withdrawal of Larry Summers’s candidacy as head of the Federal Reserve.

Markets now expect the job to go to Janet Yellen, who is regarded as a more dovish candidate than Summers. In addition to the brighter external picture, the SET has been lifted by last week’s second and third readings of the Bt2 trillion loan bill for infrastructure development. This has helped trigger a new wave of buying interest in construction material firms, contractors and banks. Although we believe that the bill will eventually be passed into law, it could still face hurdles outside parliament from the Constitutional Court and the Administrative Court.

We continue to favour stocks in the energy, banking and residential and industrial estate sectors. Residential property stocks could benefit from Agency of Real Estate Affairs data showing that launches of new housing projects in August jumped by 91 per cent month on month and 32 per cent year on year to 11,000 units.

We have also turned more positive on CPALL due to lower funding risks following its large group bond road show as well as its strong upside to our target price of Bt47. Our other top picks include PTTEP, TOP, SCB, TMB, LH, QH and HEMRAJ.

 

Trinity Securities

Research Department

The SET is trading at a rich valuation now. The SET Index rose significantly after the Federal Open Market Committee decided not to reduce its QE3 at its recent meeting. Such rises in the SET Index boosted its valuation to be more expensive. Forward price to earnings currently stay at 14.8 times, equivalent to 1.5SD. Earning-yield gap reaches the lowest in 33 months from December 2010.

Previously, listed companies’ earnings estimates have been revised down consistently, contrary to the SET Index. With this, we see the current SET Index at a relatively high downside risk. More, the US debt ceiling issue will start fuelling pressure on stock markets in the next periods. Underweight investment in portfolios could be the best and safest strategy in this period. In the initial period after the Fed refrained from QE tapering, there could be some foreign capital flowing into stock markets. Therefore, those who want to invest in stocks should invest in relatively safe stocks with limited downside risks, based on three quantitative analytical methods. 1) Stocks with the highest amount of net accumulative sales through NVDR from July 24, the first day the SET Index reached its record high at 1,513 points, onwards – SCC, BBL, TMB and DTAC; 2) Stocks with the highest short sales in terms of value from July 24 onwards – KBANK, ADVANC, TRUE, SCB and BBL; 3) Stocks in the SET50 with the most price drop from their closing on July 23 – MAKRO, THAI, BGH, ADVANC and EGCO.

In conclusion, we expect the SET Index, during this period, has followed short-term improvement in sentiment with fundamental support. This is based on consistent downward revision of listed companies’ earnings forecasts. With this, selling stocks to lock up profit in portfolios is recommended. But for those who want to invest some in stocks, we recommend stocks as mentioned above. These stocks are expected to be relatively safe with limited downside risks. Investment in this period needs strict stopping point, given high market valuation.