Market Watch

Thanawat Patchimkul

Head of Research, DBS Vickers Securities (Thailand)

The Stock Exchange of Thailand remained on a downward trend in July, giving up move than 4 per cent of its value. At 1,444 points, the SET Index is at its lowest level since June last year.

Leading the market down during July was the PTT Group, on the back of declining global oil prices. Banking stocks were also down on concerns over deteriorating asset quality, which led to higher loan-loss provisions.

Outperformers in July were led by telecom, hospital, and building-material counters such as Advanced Info Service (ADVANC), Intouch Holdings (INTUCH), Bumrungrad Hospital (BH), Bangkok Dusit Medical Services (BDMS), Tipco Asphalt (TASCO), and Siam Cement (SCC).

Foreign investors have sold a net Bt23 billion of Thai shares month-to-date, bringing the net selling position to Bt40 billion year-to-date.

We still do not see any major positive drivers to the Thai market that could lead the SET Index to reverse its downward spiral.

Investors continue blaming capital outflows, concerns on a US interest-rate increase, the slowing Chinese economy, Greece’s problems, etc.

On the domestic front, infrastructure investments will be delayed and the drought is expected to hit farm income, which will in turn dampen domestic consumption and probably lead to a higher debt level, and exports are yet to pick up. Upbeat sentiments on the tourism industry have already been factored into the share prices.

Given the bleak outlook of the Thai economy, we maintain our recommendation for investors to hold more cash or diversify their portfolios into overseas stocks. Selective plays on industries with positive structural changes will normally generate significant return in the longer term.

China A-shares may carry high risks at their current levels but N-shares are currently offering better prospects. N-shares are the Chinese companies listed on the US stock exchanges that are not a part of A-shares or H-shares. These stocks are new-economy stocks such as e-commerce, online financial services, online travel agencies, web portals, online gaming, etc. Familiar names are Alibaba, Baidu, NetEase, JD.com.

The new-economy businesses will benefit from expanding network coverage and improving Internet speeds in China via the massive government-led investments over the next few years. Apart from having solid fundamental support for growth, these Chinese N-shares are expected to be added into the MSCI China and Emerging Markets Index by November, according to Enhanced Investment Products, the manager of the Chimerica Exchange Traded Fund (ETF).

N-shares’ weighting will be increased from zero to around 3.5 per cent in the MSCI Emerging Markets Index. In the MSCI China index, the N-shares will be weighted at around 12.9 per cent from zero weighting previously. Chimerica ETF, which invests in N-shares, is listed on the Hong Kong Stock Exchange. However, new investors are advised to familiarise themselves with the risks and general characteristics of the ETF before investing.

Tisco Securities

After the market’s decline of 4 per cent this month, coupled with earnings downgrades, the Stock Exchange of Thailand’s forward P/E (price to earnings) multiple has fallen from 14.4 times to 13.8x (from +1.4 to +1 standard deviation). We consider the SET at +0.5 SD (around 1,400 points based on our latest earnings forecasts), a good re-entry point.

However, we are waiting for clearer signs of an economic recovery before turning positive on the SET.

With tepid consumption, retailers are seeing a resilient trend in small-ticket items but weakness in spending on discretionary goods. Given the improvement in sales of household staples, we see food retailers as a relatively safe haven and have added CPALL to our top-picks list.

While private investment remains subdued, public investment has kicked off on the back of improving disbursements by state enterprises.

We also maintain our positive view on tourism – and by extension AOT (Airports of Thailand) and AAV (Asia Aviation) – which again showed its resilience during the issues regarding MERS (Middle East respiratory syndrome) and the International Civil Aviation Organisation’s "red flag".

Bank results in the second quarter proved disappointing, mainly because of rising credit costs and higher provisions. This has sparked concerns about other sectors’ results, leading to a raft of earnings downgrades. We believe that potentially disappointing 2Q15 results are already partially reflected in current share prices and see limited risk of a further significant sell-off.

Note that TCAP (Thanachart Capital) remains our only "buy"-rated stock in the banking sector because of its deep discount to industry peers, improving balance-sheet trend and sustainable high dividend of 5 per cent. We also like ADVANC (Advanced Info Service) given that the auction of fourth-generation licences is likely to take place in November (with both 900-megahertz and 1,800MHz spectra up for bidding). We now think ADVANC is likely to emerge as the biggest winner from the auction.

Gaining a 900MHz licence would reduce the company’s regulatory costs for its 2G business. The two licences would also give ADVANC more 4G spectrum real estate.

Research Department

Trinity Securities

The SET Index continues to see limited upside due to foreign sales late last week. Funds flow is relatively weak in the futures markets. Foreign investors net shorted sales for the past two weeks. The baht has also been at its weakest, compared to its regional peers, reflecting foreign capital flowing out of Thai capital markets.

Another factor pressuring the SET Index is the drop in crude prices. Market concerns involve crude oversupply after the US announced higher-than-expected crude stocks last week and Opec (Organisation of the Petroleum Exporting Countries) produced more amount of crude in June. We believe that it would be relatively difficult for the US dollar to appreciate further. It is likely to prompt rebounds of commodity prices. The price of our top energy pick, PTT, fell to its attractive level. Suggest "Buy" at the target price of Bt398. Special dividend payment is expected at about Bt7 per share for first half of 2015.

Next week, a key factor for monitoring is the US Federal Open Market Committee meeting, whose result will be known late on July 29. We expect the Fed statement to remain unchanged from the previous one. We maintain our view that the Fed will have the first rate hike in September as markets expected. Investment strategy: Hold cash and adopt a wait-and-watch approach. If the SET Index falls to 1,420 points, gradually make investment again.