SET likely to shrug off corporate results and surpass 1,600 points

Helping offset lacklustre corporate earnings and weak macro data are seasonal LTF/ RMF (long-term equity fund/retirement mutual fund) inflows, year-end window-dressing and a rise in global liquidity supported by China’s recent surprise decision to cut the policy interest rate.

Sentiment has also been boosted by news last Wednesday that Customs-cleared exports rose 4 per cent year on year to a 21-month high of US$20.1 million, beating consensus estimates of 0.6-per-cent growth. Also encouraging was that growth was broad-based with rebounds in manufactured exports (up 5.4 per cent year on year versus negative-0.4 per cent previously) and auto and parts (+7.4 per cent vs -12.1 per cent previously) leading the way.

Note that loan growth by banks under our coverage edged up by 0.2 per cent in October (vs a 0.5-per-cent decline in September) on seasonality but the overall trend remained weak. Our banking analyst continues to forecast a mild to modest industry recovery in 2015 (as benefits from the government’s infrastructure projects begin to manifest midway through the year) and more substantial, attractive growth in 2016. As SCB (Siam Commercial Bank), KTB (Krungthai Bank) and BBL (Bangkok Bank) have now caught up with peers in terms of share price, our analyst has switched her preference back to KBANK (Kasikornbank) and TMB for their superior/more-secure earnings growth from this quarter through 2015 (4Q14-2015F).

Elsewhere we see investment opportunities in contractors (STEC – Sino-Thai Engineering and Construction – and CK [Ch Karnchang]), residential property (AP), media (VGI) and consumer plays (CPN [Central Pattana], HMPRO [Home Product Centre] and ROBINS [Robinson Department Store]).  

 

Research Department

Trinity Securities

The biggest issue last week was that the Organisation of the Petroleum Exporting Countries (Opec) maintained its ceiling for daily crude-oil production at 30 million barrels, which has taken crude prices across the world to four-year-record lows. 

This issue had a negative impact on energy stocks, including those in oil exploration and production, and refineries, which are tending to report stock losses in the fourth quarter. However, those benefiting from the issue are airlines, which will see lower fuel costs. Our picks are THAI (Thai Airways International) and AAV (Asia Aviation), as these two com-panies gain positive performance momentum. 

Other groups likely benefiting from the issue are power plants (EGCO [Electricity Generating], RATCH [Ratchaburi Electricity Generating Holding], GLOW) and construction-material firms (TASCO [Tipco Asphalt]).

In Thailand, there appear good signs of fund flows. Foreign investors continued net long in the market throughout last week, closing their short status and opening some new status.

The December 4 meeting of the European Central Bank meeting is not expected to see any key developments as it may wait for the results of the second round of TLTRO (targeted longer-term refinancing operations) on December 11. Our view is similar to ECB president Mario Draghi’s recent statement that it may take some time to see positive impacts from the measures.

Investors may position themselves in December by switching their money from 

small caps to those in SET50 and SET100. Our studies have found that in December of every year, big caps (SET50) and medium caps (SET100) usually see satisfactory movement. 

The reasons include the facts that, first, big caps mostly see purchases from LTFs/RMFs (long-term equity funds/retirement mutual funds) in the country and, second, medium caps included in SET50 usually gain positive sentiment from the Stock Exchange of Thailand’s announcement in the middle of the month. 

The SET Index is expected to gain its base and stay above 1,600 points this week, given LTF/RMF purchases and improved signs of fund flows.