Domestic issues could cast shadow over SET Index

Based on previous information, the US Congress has passed a resolution to extend the debt ceiling of every government. The five-year-old Barack Obama government has got approval for the extension five times. This time it is expected to get a similar approval. Another is the quantitative easing (QE), which investors have to understand is a temporary measure that will end. 

The Thai stock market believes in gradual reduction in weight of this measure. Since late May 2013, more than Bt91 billion capital fled Thailand with foreign holdings reducing by more than Bt170 billion, based on market value. And it seems most of the impact from such an issue has been absorbed. Foreign capital is expected to move with volatility in the next one month.

One of the local factors is the political situation. From now, they are all about consideration by the Constitutional Court of three main issues: whether the expenditure budget act for fiscal year 2014, Article 27-28 (the Office of the Judiciary and Office of the National Anti-Corruption Commission) contradicts Article 168, paragraph 9 of the Constitution; whether the draft amendment of the Constitution on senators contradicts Article 68 of the Constitution; whether the draft act authorising the Finance Ministry to borrow Bt2 trillion contradicts Article 169 of the Constitution. 

Next week will see a review of the amendment of the Constitution, Articles 68, 190 and 237, all of which have contradictions. Thus, politics will remain a factor to be followed as it will put pressure on the stock market.

As mentioned above, most factors will prompt negative sentiment in the stock market but some have already been priced in. This week should see the SET Index move with volatility depending on the news in a range of 1,400-1,450 points. A chance for window dressing is not expected at the end of the quarter without the SET Index’s significant rise. The conditions for window dressing are less. Mutual funds show the net asset value at close every day. Most of the funds are open-ended. Based on the accounting standard, other institutional investors’ mark-to-market investment that affects profit/loss statements is for trading only. This is not much. 

We recommended equity holding at about 40 per cent of investment portfolio. Focus on stocks with sound fundamentals and high dividend yields. The portion should be added to when the SET Index stays at the price to earnings ratio (PER) of no more than 14 times (about 1,380 points at the end of 2013). Another 20 per cent of the portfolio could be trading in groups with positive sentiment like information and communications technology, tourism, construction materials and the remaining 20 per cent in cash waiting for increasing the investment portfolio.

 

 

Kitpon Pripisankit

Equity analyst and strategist

Kasikorn Securities

 

After a sharp rise of 18.5 per cent from its low on August 28, the SET Index last week slumped 69.27 points, or 4.66 per cent, given no new factors and profit-taking to avoid risks from this week’s 2014 US budget draft and the likely rise of the US debt ceiling in mid-October.

Although investors may be concerned about such issues, such conflicts are political problems that can be compromised. They are not beyond control. Both issues are related. If the budget draft passes, that will signal an approval of the debt ceiling. 

With the fragile US economy, the Congress eventually will be able to find solutions for such issues. None of the political parties would want to take the blame for compromising on the nation’s economy. Therefore, we see the global stock markets with upward risks in light of too many concerns over the US economic risks. 

In the worst-case scenario, if the US is unable to reach an agreement on such issues, we expect the downside risk of the SET Index in a range of 1,350-1,400 points (13-14 times PER). 

At this point, the SET Index will be able to cope with corrections and it is attractive for investment. We favour gradual accumulation of blue chips gaining from the global economic recovery, export-oriented stocks and local-investment stocks. Stock picks: PTTGC, PTTEP, SCC, TPIPL, KTB, SCB, BBL, LH, KCE and SAT.