Bottom fishing on banks

Non-performing loans (NPLs) as well as an increase in loan-loss provisions had spooked investors over further deteriorating asset quality. Although we are not upbeat on banks and lowered their weighting in our strategy report issued in March, we believe the recent sell-offs should present a bottom-fishing opportunity for long-term investors.

Banks have strong balance sheets supported by their high loan-loss reserves with a solid capital base. The hiccup in NPLs is expected to be mild and manageable. We believe the NPL increase should not be viewed as a rising trend while the economy is already on the recovery path. We anticipate the stock prices among key banks recovering quickly once market sentiment improves.

The Bank of Thailand cut the policy rate twice in two months. The rate was cut by 25 basis points to 1.50 per cent on April 29. The bank had cut its rate by the same margin at the March 11 meeting of its Monetary Policy Committee.

The Finance Ministry has lowered its GDP growth forecast to 3.7 per cent from 3.9 per cent, which is also its second downward revision this year.

On one hand, the interest-rate cut and the slower growth estimate for gross domestic product indicate the weakness of the economy. On the other hand, the rate cut should be viewed as the authorities making concerted accommodating efforts to revive the economy, which is positive for the market.

In terms of overall investment strategy, we recommend that investors stay defensive on the market and diversify their portfolios to foreign stocks with brighter growth prospects.

Investors might consider adding overseas ETFs (exchange-traded funds) to their portfolios. We believe investors should open overseas trading accounts to seize immense opportunities in the foreign markets at a time when the Stock Exchange of Thailand is sluggish.

Tisco Securities

Headwinds continue to buffet the Stock Exchange of Thailand and we see little sign of a sustained turnaround in investor sentiment until there are clear indications of economic recovery.

The Commerce Ministry slashed its export-growth forecast from 4 per cent to 1.2 per cent after reporting that customs-cleared exports fell 4.5 per cent year on year in March and 4.7 per cent year on year in the first quarter.

While our Economic Strategy Unit expects growing markets such as the United States and CLMV (Cambodia, Laos, Myanmar and Vietnam) to continue gaining strength in line with their economic recoveries, it doesn’t see any signs of a pick-up in demand from China, Asean, Japan and the European Union in the first half because of their slow recoveries. Export prices are likely to suffer from the high base effect until next quarter.

Another major headwind is weaker-than-expected first-quarter bank results and the sector’s unexciting outlook for the second quarter due to a further rise in non-performing loans, increased provisions, more interest-rate cuts and a slowdown in growth in non-net interest income.

In the aftermath of the Bank of Thailand’s second straight 25-basis-point policy-rate cut last Wednesday, our banking analyst believes concerns over net-interest-margin compression should begin to ease and anticipates an NIM recovery starting next quarter on further downward re-pricing of cost of funds.

The sector’s steep decline in recent days appears to have fairly priced-in market concerns regarding rate cuts and the worse-than-estimated first-quarter asset quality. While the sector is likely to continue to underperform the SET, the target price/dividend yield upside for our top picks KBANK, SCB, TMB, and TCAP has become more attractive for a short-term rebound play, particularly as we could see a rise in domestic liquidity flowing into equity assets.

After two cuts, the central bank’s policy rate should remain flat at 1.5 per cent for the rest of the year, but it forecasts a pick-up in economic growth in the second half.

Trinity Securities

 We expect four major events to propel the SET Index to 1,500 points and stay there with limited downside risk.

The SET Index’s downside risk is more limited. In the short term, it is restrained at 1,500 points, given four major events on April 29. First was the MPC’s policy-rate cut to 1.5 per cent to stimulate Thai exports.

Although this rate cut may prompt capital outflow in the short term, the SET Index is expected to be sustained, given local investors’ higher risk appetite and the phenomenon of P/E expansion that could lead to several companies’ re-rated fundamentals in the next periods. In the short term, there will be positive to nanofinance, hire purchase and electronics groups.

The US’ first-quarter GDP was disappointing with only 0.2-per-cent growth QoQ, prompting the US dollar to depreciate in the short term. This is positive factor for commodities, including oil.

The third is the first crude stock draw in five months at the US cushing, possibly signalling easing of the oversupply problem.

Given rising crude prices and declines in crude inventories, energy and petrochemical stocks could outperform the market. Several companies with the US dollar as their functional currency could also gain from the weakening baht.

The US Fed has not given a sign for a rate rise in the next FOMC meeting from June 16-17 after its April-29 meeting mirrored the Fed’s greater concern for the American economy.

The recommended investment strategy will change the recommendation from “wait and see” to “cumulative buy on weakness”.

The SET’s short-term downside risk is limited at 1,500 points, given the reasons above. Hold stocks that gain from the rate cut – SAWAD, MTLS, GL, ASK, JMT and HANA – and gradually accumulate energy and petrochemical stocks – PTT, BANPU, PTTGC, SCC.