SET Index has limited upside potential now

The key concerns we heard were the sluggish economic recovery and political developments.

The investors were particularly paranoid about the economic hangover from huge stimulus packages such as the first-car and rice-mortgage schemes, the small budget deficits when Thailand needs a big one – both fiscal 2014 and 2015 deficits are 2 per cent of GDP, the smallest since fiscal 2009 – and stalled exports due to falling commodity prices.

That said, some positive developments have been seen in recent times.

First, the Cabinet approved in principle fiscal 2016 budget expenditure of Bt2.72 trillion with a deficit of Bt390 billion, or 3 per cent of GDP.

Then, in response to the disappointing disbursement rate, the government reshuffled high-ranking civil servants, demoting those who could not keep up with the government’s policies.

Also, pressure is expected to continue to rise on the government to stimulate the economy/accelerate project biddings.

A stimulus package would likely focus on farmers and SMEs, so a more material economic recovery can be anticipated in the second half.

The first-quarter results from non-bank companies have generally been unexciting and this factor, coupled with the baht’s slide, has weighed heavily on the overall market sentiment, that has led to the wiping out all of the SET’s gains so far this year.

However, several major stocks with our "Buy" recommendation last week beat market expectations, notably TRUE, AOT, BDMS, IVL, SCC, TOP and PTTEP.

Other market heavyweights that reported better-than-expected results include PTT and CPALL. Note that we maintain our "Hold" rating on both stocks.

Trinity Securities

We see a limited upside risk for the SET Index after the US bond yield remained high.

There are still risks in overweighting stocks now if the 10-year treasury yield stays above 2.1 per cent and the SET’s estimated earnings per share sees no sign of upward revision.

We are still unable to revise up our estimate for the appropriate SET Index in the short term from 1,500 points.

Signals for fund flows are still weak.

Foreign investors continue net selling in all three markets – stocks, futures and bonds. We believe that this is a phenomenon of temporarily moving out capital to developed countries after their bond yields rose.

This week, we should follow the GDP announcement, which is expected to stay at about 3 per cent on year.

If the actual figure comes out close to the estimate, there will be not much impact on the SET.

Our strategy for investors is to hold cash and continue slowing down investment after no new support factors came out.

Upside potential is limited for the SET.

The margin of safety for investment is not enough.