Positive, negative factors have similar weight for rest of 2014

Positive factors

nThai growth in gross domestic product and listed companies’ earnings in 2015. Asia Plus Research |forecasts next year’s GDP growth |at 3.5 per cent, while the listed companies’ earnings growth is estimated at 15.59 per cent. The projected growth figures are high, given their relatively low bases in 2014 after pressure from the country’s political situation and the global economic slowdown.

nLTF (long-term equity fund) purchases are expected to support the Stock Exchange of Thailand. Based on three-year records, LTF purchases went higher than Bt40 billion per year. In the first 10 months of 2014, LTF purchases amounted to Bt18.8 billion on expectations for more purchases of no less than Bt20 billion for the remaining two months. The additional purchases are believed to go into the stock market.

Meanwhile, the equity funds’ status should also be considered. According to Asia Plus’s data at the end of the second quarter of 2014, equity funds’ stock holding was high with relatively low cash holding of about 3.75 per cent. Since 3Q14, local institutional investors continued their net buys of more than Bt5.3 billion. Therefore, in practice, there may not be significant rises in purchases of funds.

nWindow dressing. It is believed that late this year will see purchases to support the SET Index closing higher.

Negative factors

nHigh market PER. At the SET Index of 1,600 points, the market PER (price-to-earnings ratio), at the end of 2014, will be 17.24 times, higher than the normal level. The Thai stock market is usually traded at no more than the market PER of 16 times. At such a high level, profit-taking usually follows. Based on comparative PER and EPS (earnings per share) growth figures between the SET and its regional peers, the Thai stock market is seen as less attractive in terms of valuation, which could prompt capital outflows into other bourses with cheaper valuations.

nProprietary trading accounts for 11-12 per cent of total trading in the Thai stock market. Since 2010, this group of investors’ net buy/sell has likely been slightly positive or negative. In 2012, the highest net purchase totalled Bt7.26 billion, while the highest net sales amounted to Bt1.72 billion in 2013. Interestingly, net accumulative purchase of stocks, from the beginning of this year to December 2, remained high at Bt16.5 billion, and this risks net sales for the remainder of the year.

Under this environment, adjust investment portfolios through sales of stocks with sharp rises in prices and high PER and raise the proportion of stocks with sound fundamentals like SCC (Siam Cement), SPALI (Supalai), INTUCH (InTouch Holdings), SAMTEL (Samart Telcoms), ERW (Erawan Group).