SET Index continues its volatility in a narrow range

Because of exposure to Sahaviriya Steel Industries’ debt problems, ASPS analysts cut their estimates for the banking group’s profit this year by 3.5 per cent from the previous forecast, or about Bt6.5 billion.

The cuts were made because of three banks’ increased loan-loss provisions. Those institutions are Siam Commercial Bank (SCB), Krungthai Bank (KTB) and Tisco. Thus listed companies’ estimated EPS (earnings per share) was slashed by Bt0.7 to Bt89, and that pushed the market PER (price-to-earnings ratio) slightly higher.

At a SET Index level of 1,380 points, the current PER is 16.1 times. If the market PER is targeted at 16-16.5 times this year-end, the SET Index will be in a range of 1,424-1,468 points with upside of 3.2-6.4 per cent for the rest of this year. The SET Index, thus, is expected to swing in a narrow range on two factors.

The first factor is fund flows. As foreign investors have net-sold Thai stocks consistently since mid-2013, consistent net foreign purchase has not been seen. At this point, there is no sign of a return of foreign capital amid expectations of further depreciation of the baht. 

Market turnover has also been thinner. 

Local institutional investors are now the main drivers of the SET Index. Local institutional investors and brokerage portfolios have driven the Stock Exchange of Thailand in certain ways. Recently, both groups took profit in short rounds. Therefore, the SET Index was not able to rise significantly and continues moving in a narrow range.

The second factor is fundamentals. There are concerns over the stability of the global economic recovery, particularly in China. Most of China’s economic figures signal a slowdown. In contrast, the stronger US economy has raised concerns over possible interest-rate increased by the Federal Reserve. 

These are negative factors from overseas. In this country, the issue is the government’s economic stimulus measures, aiming to shore up the domestic economy in terms of household consumption and public and private investment. The stocks of companies expected to gain from these measures have responded positively. However, the overall response of the SET Index has been limited, given its large weight on energy, petrochemical and financial institutions, which will not gain from the measures directly. 

For all of the above reasons, the SET Index is expected to be volatile in a narrow range this week. Investment strategy is to select stocks that are expected to gain from the state measures. Stock picks for the residential property development group are SIRI (Sansiri) and PS (Pruksa Real Estate), while those in the construction group that could see speculative purchase are CK (Ch. Karnchang), STEC (Sino-Thai Engineering and Construction) and ITD (Italian-Thai Development). The stock pick for the communications group is INTUCH (InTouch Holdings) and that for transport is BTS (BTS Group Holdings).

 

Prakit Sirivattanaket 

Vice President 

Kasikorn Securities

 

Last week, the SET Index swung in a narrow range of 1,364-1,397 points with thin daily turnover of Bt35 billion. 

The Stock Exchange of Thailand continued to lack certain support factors despite expectations on the government’s economic stimulus, which could have positive impacts on such industries as construction, construction materials, retail and property. But these industries’ combined market cap may not suffice to push up the SET Index significantly. 

During the week, big caps like banks were pressured heavily. In particular, three banks extending loans to Sahaviriya Steel Industries had to increase their combined provisions by Bt21.5 billion after SSI ceased its UK production temporarily. This could pressure the SET Index to swing into negative territory throughout the week.

There’s a negative sign and risk to the stock market this week. The S50Z15-S50U15 spread stays at minus 16 points, below the theoretical level of plus 2.3 points. This is the most negative level for the spread since S50Z15 started trading. Its heavy drops could reflect investors’ negative view against the SET50 Index in the fourth quarter of 2015 with opening of their short positions in large numbers, pressuring S50Z15 to move worse than S50U15 consistently. 

Looking back to late 2Q15, the spread of long-short series usually becomes very negative and the SET Index normally gives a negative response. In late 1Q15 (March 24-30), the S50M15-S50H15 spread moved from minus-7 points to minus-14 points in the last day. During that period, the SET Index fell by 1 per cent. Late in 2Q15 (June 24-29), S50U15-S50M15 spread went down from minus-11 points to minus-25 points on the last day and the SET dropped by over 0.5 per cent. 

Our research team sees little chance of window dressing in the last week of the third quarter. Statistically, window dressing takes place clearly in the late second and fourth quarters of each year. (It’s also seen in the first quarter frequently but more often in second and fourth quarters.) On the contrary, window dressing did not come out clearly in the third quarter, reflecting from the SET Index’ five-year movement (2010-2014).

During the last week of the third quarter, the SET Index, in that period, rose twice only in five years or a probability of 40 per cent. Return on the SET stood at minus 0.89 per cent in the last week of the third quarter. In the last week of September for the past five years, local institutional and foreign investors were net buyers of Thai stocks in only two years. It could be said that both groups of investors have a probability of 40 per cent as net buyers. Thus there is little chance of window dressing late in the third quarter, compared with others.

This week, both internal and external factors must be followed. 

Locally, the Commerce Ministry is expected to announce August export figures on September 28. Based on a market consensus, August exports are expected to shrink by 2.8 per cent year on year. Exports have contracted for seven consecutive months, shrinking 3.56 per cent year on year in July. 

Outside the country, US consumer confidence will be reported on September 29, the euro zone’s Consumer Price Index will be announced on September 30 and China’s Purchasing Managers Index will come out on October 1. The US unemployment and non-farm employment figures will be reported on October 2.