Fund flows following ECB action to lift the SET

Given that the euro-zone economy began to weaken around mid-2014, the continued weakness prompted the ECB to take action on January 22, 2015. We ob-|served that fund flows into the |US market for both equities and bonds started gradually from August 2014. The flows into the |US market are also from Switzerland and the United Kingdom, as seen from the in-creasing fund flows into S&P 500 ETFs (exchange-traded funds) that are listed on both the Swiss and London bourses. The funds flowed out of German-stock ETF, emerging markets, and the broad European stocks. 

Expect fund inflows to Thai equities but muted impact on the economy and listed companies. We see the inflows of funds into risky assets including equities, which will support a Thai market rally. The liquidity-driven rally will also bring in volatility, as the rising stock prices may not justify their fundamentals. 

On a broader base, the impact of the euro’s weakness on the Thai economy is seen to be limited, given that Thai exports to the euro zone are only 10 per cent of the total, while imports from the region account for only 8 per cent of the total. In fact, 35 per cent of import payments to Europe were made in euros, which is much higher than the export receipts quoted in euros, at 16 per cent of total payment currencies. The US dollar remains the dominant currency in Thailand’s external trades. 

The euro’s weakness will benefit Thai trade with Europe as it reduces its import bills in baht terms. 

 The impact from further weakness of the euro against the baht on Thai-listed companies is limited. We have highlighted companies with exposures to the euro, that is KCE Electronics, Indorama Ventures (IVL), Thai Union Frozen Products (TUF), Airports of Thailand (AOT) and Charoen Pokphand Foods (CPF). Upon our evaluation, the impact of the euro’s weakness on these companies is insignificant. 

Buy key stocks with clear earnings visibility to capture the inflows and increasing market volatility. We recommend Kasikornbank (KBANK) and TMB for the banking sector. Supalai, Pruksa Real Estate and Amata are standouts among property stocks. We like Ch Karnchang (CK) for the construction-contractor sector, while KCE Electronics is our top pick in the electronics sector. 

Elsewhere, Chularat Hospital (CHG) offers good potential in the healthcare sector and PTT is our favourite among energy stocks. 

Intouch Holdings (INTUCH) is our top pick in the telecom sector.

 

Research Department

Trinity Securities

 

The European Central Bank decided to purchase 60 billion euros’ worth of government and private bonds starting from March this year to September 2016, and the asset purchase may continue if inflation does not reach its 2-per-cent target. 

Our view: This is positive for risky assets across the globe, given open-ended quantitative easing. In the second case as we expected, the measures came out more than market expectations. The euro carry trade, which may follow in the next periods, will boost big caps in the SET Index. Commercial banks will likely gain the highest benefits. Focus on big commercial banks like SCB (Siam Commercial Bank), KBANK (Kasikornbank), BBL (Bangkok Bank), KTB (Krungthai Bank) and TMB.

Greece will hold a general election on January 25. It’s certain that the opposition Syriza party will gain the majority of votes, judging from the latest poll. We expect limited risks, given:

1) There remains a less-than-50-per-cent opportunity for the Syriza party to gain a majority in the legislature (more than 151 seats). Thus it will have to soften its policies to find other parties to join it in a coalition government.

2) Although Syriza will form |the new government, we do not expect it to adopt a policy to |isolate Greece from the euro zone.

3) Negotiations with the Troika for a promised review of belt-tightening may be held on a gradual basis.

4) In the worst case, if Syriza cannot reach a satisfactory settlement with the Troika, the latter may cease its financial assistance temporarily. However, this may not affect Greece’s repayment capability, as the amounts due over the next few months are relatively low, and all are short-term debts.

Our strategy is that the SET Index is following our road map (the first line of an M shape). The index is expected to go up to 1,600-1,650 points within the first quarter. Let profit run to gain from capital that may move into the stock market following the euro carry trade. Overweight the banking group that could see the highest gain from this amount of capital inflow.