Sell-offs offer buying opportunity

Without sufficient evidence of an inflation threat or asset bubble, she wants to see strong expansion of the US economy before scaling down the quantitative easing (QE) measure. It means that the world can be sure of huge liquidity. The positive news regarding the QE policy mostly outpaced concerns about local political unrest. In reality, sliding domestic consumption and private investment are the core reasons behind bringing corporate earnings below previous estimates. 

Next week, the market direction will rely on the Constitutional Court ruling whether the Pheu Thai Party had violated the Constitution by amending the make-up of the Senate. In an extreme case, this could result in party dissolution. The status quo for members of parliament remains valid and the MPs will need to find a new party. The board members of the coalition party will be banned for five years. The result may cause dysfunction in government policy for a while. However, the impact on the Thai stock market is not significant, according to historical study. Therefore, we anticipate that the SET should move in a narrow trading range of 1380-1440. Stock picks are BECL, PTT, PTTGC, TUF, CPF, GFPT, CPN and MAJOR. 

 

Chanpen Sirithanarattanakul

Head of Research

DBS Vickers Securities (Thailand)

 

The SET Index eased 1.9 per cent in the last two weeks to close at 1415.69 on Thursday, due mainly to rising political pressure. Nonetheless, the Index outperformed regional peers, represented by the MSCI Asia ex-Japan Index, which fell 3.2 per cent in the same period. 

Foreign investors were net sellers in the last two weeks at Bt20.6 billion. Leading the gains were stocks in Food sector (2.2 per cent), while sectors that led the fall included Communications (-7.3 per cent), Electronics (-4.2 per cent), and Property (-3.2 per cent). 

On the external front, the US Senate nominated Janet Yellen as the next Fed chairperson on November 14. Yellen’s testimony signals accommodating policies to ensure strong economic recovery before a QE tapering. The banking committee is expected to vote on Yellen’s nomination next week before her nomination is confirmed by the Senate. 

Euro-zone GDP growth for the third quarter disappointed as output rose by a slower 0.1 per cent quarter on quarter from 0.3 per cent in Q2. While activity is picking up, the momentum appears slow and supports the European Central Bank’s pre-emptive policy action earlier this month. 

Domestically, political tension appears to have subsided after the International Court of Justice gave a win-win ruling over the disputed Preah Vihear Temple on November 11. This ruling at least removed one source of political tension from the market. 

Meanwhile, protests against the government continues, but whether protest leaders can maintain the momentum as the business community – including the Thai Chamber of Commerce and Board of Trade of Thailand – has opposed a national strike, calling it a “civil disobedience campaign” and warning it could damage the economy. 

Corporate 3Q13 results reported so far were mixed. Tourism sector performance was supported by 26 per cent year-on-year growth in the number of visitors in Q3. Most companies – except THAI – reported strong earnings. But the Commerce sector is starting to show signs of slower consumption with declining same-store sales growth. Our top picks in the Property sector (PS and QH) reported strong performance. Stocks in the Energy and Building Material sectors also beat expectations. 

Should political development improve, we expect the market to move sideways from this point on. Our five key themes are: 1) Strong growth in 2014 (THCOM, SPALI, TUF and TTCL); 2) Asset divestment (CPN and HEMRAJ); 3) Tourism plays (AOT, CENTEL and MINT); 4) Core holdings (KBANK and INTUCH); and 5) Margin recovery (SCC, PTTGC). 

 

 

Tisco Securities

Political tensions have eased a little following the Senate’s unanimous rejection of the blanket amnesty bill. However, political uncertainty remains a dark cloud hanging over the SET, with the Democrat Party trying to keep anti-government protests alive ahead of several key political events next week.

These include: the Senate’s deliberation of the Bt2-trillion infrastructure loan bill (second and third readings) today; the Constitutional Court’s ruling on whether the government’s efforts to change the make-up of the Senate violate the Constitution (Wednesday); and a mass rally by the red-shirt movement (today to Wednesday). 

In addition, the political temperature could rise again ahead of a ruling by the National Anti-Corruption Commission late this month on the government’s controversial rice scheme. Further criticism of the scheme last week came from the IMF, which conservatively estimated its accumulated losses since 2011 at US$4.46 billion.

Although 16 countries have issued advisories warning against travel in Thailand, the anti-government demonstrations have so far been peaceful and mostly good-natured. However, foreign funds remain concerned that prolonged political uncertainty would exacerbate Thailand’s economic slowdown and continue to reduce holdings in the country’s capital markets. Foreign investors have been net sellers of Thai equities for 11 consecutive days, with a combined net outflow of nearly Bt22 billion.

History reveals that SET sell-offs linked to political risks are usually a buying opportunity but that timing is the key to avoiding early losses. Among our top picks are ADVANC, JAS, CPALL and TUF, whose business prospects are mostly unaffected by politics and whose earnings and valuation combinations are attractive, in our view.