SET has a higher chance for going down

The current market PER (price to earnings ratio) is high at 16.5 times, and is expected to remain at over 16 times till the year-end. For the rest of the third quarter of 2014, the SET Index is expected to see limited upside. If the stock market stays at the PER of 16 times until the end of 2014, the SET Index will stay at around 1,570 points only.

This week, the Thai stock market is expected to remain volatile with limited upside.

The following factors should be monitored:

Fundamentals: It seems this week will see no major fundamental factors. Domestically, attention turns to the new government’s administration, which will go ahead formally after the policy declaration to the National Legislative Assembly.

Investors anticipate actual implementation of economic stimulus, extending from investment in the country’s infrastructure development plan or measures to boost spending.

At its September 17 meeting, the central bank’s Monetary Policy Committee is expected to leave the policy rate unchanged at 2 per cent.

Outside the country, markets are keeping their eyes on the key US interest rate, and that has always been interpreted depending on major economic figures, particularly employment. The European Central Bank’s injection measures are also in sight.

Fund flows: After the ECB cut the benchmark rate by 0.1 percentage point, capital is expected to flow into the Thai stock market. During the ECB’s three rate cuts, foreign investors, within one month of the date of the rate cuts, net-sold Thai stocks. Meanwhile, the Thai market’s PER is high.

This is different from early 2009 when the stock market had a low PER at only 10 times and attracted foreign investors, who net-bought Thai stocks for more than three years. Based on the above factors, foreign funds may not pour into the Thai stock market as they did between 2009 and mid-2013.

It is also believed that local equity funds will purchase Thai stocks at a very low level. Based on a survey of 220 local equity funds, at the end of the second quarter, their cash holdings stayed at 3.75 per cent only, compared with the normal level of 2-10 per cent, reflecting low chance for big purchases. Therefore, the Thai stock market will still lack fund flows from major investors.

Amid high market volatility and relatively expensive PER, pick individual stocks with positive factors and lower prices than their fair value at this year-end for trading in the short term. Our picks: GUNKUL (Gunkul Engineering), STPI, TTCL (Toyo-Thai Corporation), SAMART, and LALIN (Lalin Property).