Room for SET to remain upbeat

The key reason for the swift recovery has been a sharp reduction in volatility in global financial markets, aided by fresh signs of strength in the US economy.

The market has also been helped by upside surprises in Thailand’s September trade data. Customs-cleared exports beat consensus forecasts of minus 2 per cent, rising 3.2 per cent year on year (YoY), versus minus 7.4 per cent in August. Meanwhile imports posted a positive surprise, jumping 14.4 per cent YoY for the first positive gain in 14 months. Also helping investor sentiment was the government’s plan to launch further economic stimulus measures before the year-end and the Transport Ministry’s aim to begin construction of infrastructure projects worth Bt68 billion by 1Q15.

Tactically, we expect the SET index (especially liquid sectors like banks) to find support from: 1) the recent decline in bond yields (as well as signs of a delay in a Thai policy rate hike); 2) local investors dominating the Thai equity market year to date; and 3) seasonal long-term fund/retirement mutual fund inflow.

Note that our bank analyst has trimmed 2014-16 earnings forecasts for most commercial banks by 1-5 per cent, but has upgraded estimates for KBANK and KKP by 3-8 per cent. While KBANK and TMB remain our top picks for superior SME/fee-led growth in 2015F, we see a near-term opportunity to “Buy” laggards such as SCB, KTB (upgraded to “Buy”) and BBL, respectively for a price-gap catch-up trade.

Outside the banking sector, we expect investors to focus on 3Q14 earnings plays such as SCC, GLOW, BGH, LPN and VGI. Note that we have “Buy” ratings on all five stocks. 

 

Thanawat Patchimkul

Head of Research, 

DBS Vickers Securities (Thailand)

 

The Thai market was volatile in October. After slipping from its recent peak of 1600 points around the end of September, the SET Index swung into losses at an intra-day low of around 1520 points during mid-October, down 5 per cent. Then, Thai shares recaptured some of their losses to close at 1573 points around the mid-day on Friday. Probably the most positive drivers during the latter half of October were from the US. 

The Fed has finally ended its quantitative easing programme and pledged to keep interest rates low, at least for the near future. Its economic growth was better than anticipated in 3Q14 at a 3.5 per cent growth from the previous quarter. These have driven positive sentiments towards stocks. 

Market sentiment is expected to be positive in the near term. Soft global oil prices would reduce production and logistic costs in commerce and manufacturing sectors. Interest rates are at the low-end of the range in most part of the world. These are encouraging. 

What should our concerns be then? Well, still many. The European economy remains weak and needs further stimulus. Unemployment level is still high. Confidence level is shaky. The Chinese economy will be wobbling around the 7.4-7.5 per cent growth level with numerous concerns on the table, ranging from the increasing non-performing assets among banks, risks derived from economic reforms and revamp of state-owned enterprises, the falsified trade data, etc. 

Meanwhile, the Japanese economy is still finding its own footing. The Bank of Japan surprised the market on the last day of October by enlarging its monetary stimulus programme, which will effectively weaken the yen and boost stocks. The Thai market will be taking the blow from global sentiment as the economy is still fragile. The only visible driver in the near term is government investment and spending. Exports, consumption and private investments are all on the weak side. Factors to watch are the progress of second economic stimulus packages and corporate earnings. The latter is not expected to be spectacular anyway. The SET is seen trading in a range in November. As and when the market moves closer to its recent peak of 1600, we recommend investors to increase their cash levels. We prefer certain exporters with clear earnings visibility, as they will benefit from a weak baht. We like Thai Union Frozen Products, GFPT, and KCE Electronics. 

 

Trinity Securities

The Bank of Japan’s latest move is a positive factor for the global financial market, which should maintain fund flow momentum into Thailand.

On Friday, the BoJ finally added more monetary easing after maintaining status quo for 18 months. This is expected to increase the monetary base by ¥10 trillion to ¥20 trillion annually.

We believe that Thailand’s market would be under the radar of investors who will benefit from the policy and extend the yen-denominated carry trade. The Thai market remains one of the Asian markets that offer high dividend yield. In this regard, we expect stocks in the communications sector like ADVANC and INTUCH, which have been consistent in dividend payments, to benefit the most. 

By the way, investors should also closely monitor the US Fed meeting. If inflation expectation remains under 2 per cent, there should be no change in the US monetary policy.

During this time, we recommend overweight on: 

1 Communications stocks that will benefit from the digital economy and infrastructure sharing themes.

2 Laggard energy and petrochemical stocks like PTTEP and PTTGC.

We expect that if the SET index falls to 1,540 points, more funds would be channelled to the market through more investment in LTF/RMF.