Market View

Therdsak Thaveeteeratham

Executive Vice President / Research

Asia Plus Securities

After the People’s Bank of China devalued the yuan three times last week, the baht strengthened by 2.56 per cent against the Chinese currency, from 5.6474 to 5.50. However, the baht weakened against the US dollar to 35.24-35.30.

It is believed that the Chinese central bank’s currency-policy shift will ripple through global money markets for a period, while affecting international trade, including Thai exports.

In the first five months of 2015, trade with China was 14.8 per cent of Thailand’s total trade. When the baht appreciates against the yuan, this could have negative impacts on Thailand’s exports, which will likely pressure this year’s growth in gross domestic product.

Initially, the SET Index is expected to see pressure from concerns over fundamental factors. This situation will affect the Thailand’s GDP, exports and, consequently, listed companies’ performance.

Although there was no increase in capital flowing out of the Stock Exchange of Thailand, after consistent sales from the middle of 2013 that depleted net purchases of Thai stocks since the peak of Bt320 billion in early 2009, it is expected that no net capital will move into the SET either. If so, trading on the SET is expected to become bearish, as there will be no new money coming into the stock market.

In July, the daily trading turnover was about Bt30 billion. Since early this year, the market turnover against the market cap has been 76 per cent, and will probably drop further. The figure was 101 per cent in 2013 and 80 per cent in 2014.

The current daily market turnover is not sufficient to drive up the SET Index. Combining this with the fundamentals, the SET Index is forecast to move down with volatility.

By this week, all Thai-listed companies will have announced their second-quarter earnings performance. Combined net profits are estimated to fall to about Bt200 billion, compared with Bt225 billion in 1Q15.

In the second half of 2015, there remains no expectation for profit improvement in large groups like commercial banking and energy. Commercial banks have come under more pressure about asset quality and risks of more loan-loss provisions, while energy companies have seen low oil prices.

Besides, the government’s stimulus, particularly investment in infrastructure mega-projects, has not materialised yet.

These factors could lead to slashes in this year’s net-profit estimates. Initially, a 4-per-cent cut is expected.

This year’s EPS (earnings per share) estimate will be cut from Bt95.74 to Bt91-Bt92. Assuming the normal market PER (price-to-earnings ratio) at 15 times with no capital flowing in, the SET Index should not go below 1,380 points.

Accumulate fundamental stocks with dividend yields of more than 5 per cent and Beta of lower than 1 as a means to hedge against risks for investment portfolios.

Kitpon Pripisankit

Equity Analyst and Strategist

Kasikorn Securities

The SET Index fluctuated, plunging 46.09 points, or 3.22 per cent, on concerns over weak earnings performance.

Drops were particularly felt in energy stocks. Then China’s yuan devaluations followed, pressuring markets to be worried of a loss of competitiveness in export-oriented stocks and commodities prices. However, after the People’s Bank of China finished its devaluations on Wednesday, the SET Index rebounded sharply late in the week.

The Chinese central bank cut its daily reference rate three times, by 1.9, 1.6 and 1.1 per cent, causing the yuan to depreciate to be close to the regional average (with reference to the yuan’s nominal effective exchange rate) and easing concerns over foreign-exchange volatility and a currency war. This was in spite of worries over expected positive and negative impacts of the yuan depreciation on real economies.

However, capital markets view this as positive, a pre-emptive move that will help reduce imbalances between the yuan and other currencies, including the US dollar, and lessen the chance for capital outflows that may result from the slowdown of China’s economy. Meanwhile, the US will increase its interest rates, and this will stabilise money markets in the medium term.

In Thailand, although second-quarter GDP figures will be announced on August 17 and the Bank of Thailand is expected to cut its estimates for economic figures, strategically we have a positive view of Thai stocks’ recovery for the following reasons.

First, most of the earnings performance has already been announced and markets have priced in cuts in profit estimates. Several big caps’ higher-than-expected earnings eased market concerns.

Second, recent regional money-market volatility has calmed, particularly after China completed its one-off devaluation. This could support rebounds for Thai stocks and risky assets in the short term.

Third, the expected reshuffle of the government’s economic team next week is likely to be followed by economic stimulus measures and packages, and this will have a positive psychological impact on investment.

The SET Index is expected to see the first strategic recovery target and profit-taking level at 1,420-1,440 points. Trailing stop is set at 1,395 points. Those who speculate will focus on stocks with sharp drops in prices and targets for technical rebounds or short recovering.

Energy and banking stocks are attractive: PTT, PTTEP (PTT Exploration and Production), KTB (Krungthai Bank), TCAP (Thanachart Capital), BBL (Bangkok Bank). Communications and utility stocks are also attractive and safe for speculation: INTUCH (Intouch Holdings), DTAC (Total Access Communication) SAMART, EGCO (Electricity Generating) SPCG, EASTW (Eastern Water Resources Development and Management). However, the medium-term picture is more negative. This speculation is only for the short term with stop loss.

Stock picks: KTB, DEMCO, PTT, LPN (L.P.N. Development), MINT (Minor International), AOT (Airports of Thailand), IRPC, KCE (KCE Electronics), ROBINS (Robinson Department Store).

Technical speculative picks: SAMART, CEN (Capital Engineering Network), SGP (Siamgas and Petrochemicals), CHOW (Chow Steel Industries), PMTA (PM Thoresen Asia Holdings).

Set stop loss if prices fall by 3-5 per cent.