Domestic inflows could still boost SET Index
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The continued easing rate cycle in Thailand could still push domestic liquidity inflows into equities at least in the first half of 2015. However, the overall risk-reward equation does not strike us as particularly compelling given near-term downside risk
After the 7 per cent decline in early December, the SET Index bounced back quickly, aided by year-end window-dressing and LTF/RMF inflows. Our aggregate earnings growth forecast for companies under our coverage stands at 16 per cent in 2015, which is in line with long-term historical average growth. However downside risks to our earnings forecasts outweigh upside risks despite various rounds of earnings downgrades across large parts of our coverage universe over the past year.
As the Thai macro outlook is still subject to various domestic and external headwinds and household debt leverage remains high, it is difficult to be overtly bullish on the SET in 2015. However, a tougher macro cycle should provide opportunities for strong players to gain market share from weaker competitors.
We favour domestic defensive plays, which hold dominant positions in various industries such as transportation, healthcare, telecom and utilities. We also like externally oriented sectors that benefit from a stronger US dollar, lower oil prices and a recovery in the tourism industry.
