SET Index sluggish for past 2 weeks

The index plunged to an intraday low of 1,484.91 on March 27, which was the lowest point since January 7, before bouncing back to close at 1,532.23 on April 2. Market sentiment has been weak from the poor macroeconomic outlook for exports and domestic consumption. 

Among major sectors that outperformed the market, the commerce sector gained 3.5 per cent, led by CP All and Big C Supercenter. Meanwhile, the energy sector rose by 1.9 per cent, led by PTT Exploration and Production. Conversely, the ICT sector underperformed, led by Advanced Info Services, DTAC and Intouch Holdings. 

The banking and transport sectors were also down, led by Bank of Ayudhya and Airports of Thailand respectively.

For the past two weeks, we have seen significant fund flows out of the broad US stock market into Japan, broad European stocks, South Korea, Germany and US Treasuries. The flows were in line with our anticipation, as the funds that left Europe last year have begun to move back into Europe to bargain-hunt. Outlooks for Japan stocks are solid given the improving economy. 

We have not seen any significant flows into emerging markets so far. We believe investors have become more selective and are placing higher priority on the sector-specific and country-specific investments rather than broad-based market play. 

Divergences in the direction of major global currencies are exerting mixed impact on the particular countries. On the one hand, we have the US dollar’s solid outlook. On the other hand, the euro and the yen are displaying weakness. Asean currencies are caught in between. These currencies’ diverse fortunes are imposing different impacts on international trade among the smaller countries. 

The baht, which weakened after the Bank of Thailand trimmed its policy rate, has shown some recovery of late. In recent weeks, it has been appreciating once again. The Thai currency has been stronger than most of its other Asean peers to date, fuelled by a solid current-account surplus and a high positive real interest rate. The strong Thai currency not only hurts the country’s exports to other Asean countries, it also dents the price competitiveness of Thai products when compared with Asean peers. 

We recommend that investors increase their cash levels on market strength and stay defensive. We believe core holdings should include the communication, healthcare services and tourism sectors.

 

Tisco Securities

The lifting of martial law and its replacement by Section 44 of the interim constitution have given a short-term boost to market sentiment, particularly to tourism-related stocks. 

The sector should also be lifted by news that foreign-tourist arrivals from March 1-24 jumped 25 per cent year on year and that the Japan Civil Aviation Bureau will allow Thai airlines to continue operating chartered flights into Japanese airports for another two months despite the International Civil Aviation Organisation’s warnings of significant safety issues in Thailand’s civil-aviation industry.

Buying by new trigger funds has helped support Thai equities, while there are also positive developments for the telecom sector after the National Broadcasting and Telecommunications Commission announced that auctions of fourth-generation cellular bandwidth would be held on November 11 and December 15, with the winners revealed before year-end.

Nonetheless, the economy and stock market are facing various headwinds, and the Stock Exchange of Thailand’s small rebound above the 1,500-points level looks very precarious. Domestic demand has remained sluggish longer than we had previously expected, with consumer confidence dropping to a nine-month low. 

Meanwhile Tisco’s economic team has revised down its 2015 forecast for growth in gross domestic product from 4.5 per cent to 3.5 per cent. It also sees a growing risk of first-quarter GDP posting negative quarter-on-quarter growth and now anticipates another 25-basis-oint rate cut at the April 29 meeting of the central bank’s Monetary Policy Committee.

To reflect the disappointing macro data, our strategist Dr Kampon Adireksombat has cut his year-end SET Index target to 1,600 points from 1,670 and lowered his 2015 EPS (earnings per share) growth estimate from 19 per cent to 16 per cent (versus an 18 per cent consensus). Dr Kampon notes that the 1,450-points level should be considered a good entry level as it would represent +0.5std PE (versus +1std currently), a similar level to what we saw during the taper tantrum and mild technical recession around June 2013.

The SET’s 5.1-per-cent correction in March, however, does afford opportunities for bottom-fishing in some selective stocks. In particular the recent policy-rate cut has improved the earnings outlook of auto lenders such as KKP (Kiatnakin Bank) and TCAP (Thanachart Capital). We have raised our target prices for these stocks by 5 and 8 per cent respectively and upgraded our rating on KKP to “buy”.

As we anticipate another round of rate cuts, we prefer the property sector, where our top pick is QH (Quality Houses). We recently raised our 2015-16F earnings for QH by 14 and 10 per cent respectively and revised up its target price to Bt4.70, implying 24-per-cent upside. We have also added AOT (Airports of Thailand) to our top-picks list after the stock recently fell by 13 per cent.

 

Research Department

Trinity Securities

We expect the SET Index to move sideways to sideways up, with the support level at 1,490 points and the resistance level at 1,550 points, given the following factors.

1. About six trigger funds worth about Bt3 billion to Bt4 billion are to be invested in the Thai stock market will be launched when the SET Index is at 1,500 points.

2. We expect positive effects from the Bank of Thailand’s policy-rate cut in March to prompt increases of the SET Index after rises of the forward PE (PE expansion phenomenon).

3. External factors support signs of extending time for rises of the US interest rates, which could pressure US bond yields and the US dollar. This could also cause capital to flow into emerging countries.

4. The euro zone’s government bond yields become negative as a result of its quantitative easing, and this could drive foreign capital.

Risks to the stock market include the following.

1. Cuts of Thai listed companies’ earnings estimates continue. However, there is signal for slowdown in some groups, such as energy, retail and hospitals.

2. Short-term pressure could occur if debt negotiations between Greece and the troika fail to reach a solution yet.

Stock picks in April: IRPC, IFEC (Inter Far East Engineering), ITD (Italian-Thai Development), TCAP (Thanachart Capital), BJCHI (BJC Heavy Industries), JMT (JMT Network Services), TMB (TMB Bank), TPCH (TPC Power Holding), WHA, THAI (Thai Airways International), TRUE (True Corporation), ROBINS (Robinson Department Store), SUPER (Superblock), SGP (Siamgas and Petrochemicals), KKP ((Kiatnakin Bank), GL (Group Lease), CPF (Charoen Pokphand Foods), TPIPL (TPI Polene), MONO (Mono Technology), FOCUS (Focus Development and Construction).