With foreign investors staying away, SET swaying in winds of global sentiment

The Stock Exchange of Thailand has been influenced by fragile global sentiment, with the SET Index losing about 10 per cent of its value year-to-date.

Foreign investors have sold Bt108.3 billion worth of Thai shares this year. The top losers included oil and gas and banking stocks. The sell-offs could be blamed on poor global energy prices for PTT and PTT Exploration and Production, and deteriorating asset quality for banks. The market leaders were CP All (CPALL), Bumrungrad Hospital (BH), Tipco Asphalt (TASCO), and Bangkok Dusit Medical Services (BDMS).

It is apparent that global investors are not willing to pour more money into risky assets. In fact, they are pulling their money out of global stock markets. Only a small amount of those monies went into fixed-income markets. This could be a sign investors preferred to hold cash to avoid the volatility in capital markets. The delay in the interest-rate increase by the US Federal Reserve is the major overhang factor that is swaying global markets. Slowing China growth has also dimmed the global growth outlook.

Investors from developed markets normally have a home bias and pull their money back to their respective regions. Many of them are of the view that emerging markets are very risky because they will be affected by weak demand in both domestic and global markets.

Weakening emerging-market currencies also make these stock markets less attractive. DBS’s economic team has pointed out that the Malaysian ringgit and Indonesian rupiah are the worst-performing Asian currencies this year – they have depreciated to 1997 Asian financial crisis levels. The baht has also depreciated to levels worse than during the Lehman Brothers crisis. The major culprit is the strong US dollar, which is supported by expectations of a Fed rate hike soon. The currency turmoil is also blamed on quantitative easing by the European Union and Japan.

Emerging markets have suffered from constant policy manipulation in developed regions. As one global investment guru put it, the Fed is strong enough to save the United States and the European Central Bank is strong enough to save the euro zone, but neither of these powerful central banks is reaching out to save emerging markets. It is not on their agenda, anyway.

The proper strategy in the current volatile market environment is to reduce portfolio risks by raising cash levels. We would recommend taking this opportunity to realign portfolios towards quality stocks with solid fundamentals and clear earnings visibility at bargain prices.

Do not be limited to Thai stocks. Diversify the portfolio to include overseas stocks with good prospects.

But there is no need to hurry; there is ample time for bottom-fishing because there are no signs the global economy will stage a rapid recovery soon.

Tisco Securities

After flirting with the 1,400-point barrier for most of September, the Stock Exchange of Thailand extended its bearish trend in the final week of the third quarter amid global economic jitters, disappointing trade data and the Bank of Thailand’s downward revision of its 2015 GDP forecast to 2.7 per cent (from 3 per cent).

Renewed worries about China’s economic slowdown, a slide in global commodity shares and continuing uncertainty on the US interest-rate lift-off undermined the market mood.

Meanwhile the baht slid to six-and-a-half-year lows after August exports

fell 6.7 per cent year on year (vs minus 3.6 per cent previous, minus 3.2 per cent Tisco’s Economic Strategy Unit and minus 3.1 per cent consensus).

In the near term, we believe the market should stabilise at current levels, although upside looks limited in the absence of positive catalysts.

Sentiment should improve slightly on (1) the Fiscal Policy Office’s new stimulus package for the property sector, which is expected to be submitted to the Cabinet on October 5; (2) new railway projects after the State Railway of Thailand called tenders for the Jira-Khon Kaen dual-track railway by October 2 after bids for the Chachoengsao-Kaeng Khoi route were submitted last Wednesday; and (3) expectations that the Cabinet will approve three mass-transit lines and two waste-fuelled power-plant projects worth a combined Bt200 billion by year-end.

Note that we have "Buy" ratings on three residential property developers: QH (Quality Houses; implied value of its core property business is extremely cheap), AP (the cheapest on a P/E basis) and PS (Pruksa Real Estate; market leader in terms of presales).

Among our favourite infrastructure stocks is GPSC (Global Power Synergy) on which we recently initiated coverage with a "Buy" rating and 48 per cent upside to our Bt33 target price. GPSC is PTT’s in-house utilities business and began trading last May after an initial public offering at Bt27 a share. The stock is now trading at a 17-per-cent discount to that price despite having the strongest overall capacity growth in the sector, with its attributable capacity forecast to rise 46 per cent to 1,971 megawatts by 2020.

Another infrastructure play on which we initiated coverage is BTSGIF (BTS Rail Mass Transit Growth Infrastructure Fund), which has exclusive rights to net fare-box revenue on BTS’s 23 core Skytrain stations until the end of its concession in December 2029. Our analyst forecasts 6-to-17-per-cent earnings growth for 2016-18, supported by the opening of new Skytrain extension lines, which she estimates will boost ridership by 6-8 per cent during the period. Note that her 2020-21 commuter growth forecast is much more aggressive at 20-25 per cent as it accounts for the opening of core-connected extension stations.

In addition to its robust commuter growth outlook, another of BTSGIF's key strengths is its projected 7-to-9-per-cent dividend yield for 2016-18. Together with the 18-per-cent upside to our Bt11.72 target price, this translates to a potential total return of 25 per cent.

Trinity Securities

Research Department

 

This month, the SET Index is expected to fall in the early period before likely rebounds late in October. The support level is set at 1,290-1,310 and the resistance level at 1,390-1,410 points. The following factors shall be monitored closely.

Likely support factors

1 It is possible that the Bank of Japan will extend its quantitative easing at its October 30 meeting.

2 The US Federal Reserve is forecast to leave its interest rates unchanged at the October 27-28 meeting and the global financial system could still have high liquidity.

 

Possible pressure

1 Fund-flow signals have become weak again, which has prompted the baht to depreciate to a nine-year low. Thailand’s CDS also rose to a nearly four-year high, indicating higher risks.

2 Analysts may cut the banking and energy sectors’ earnings estimates in the preview period of third-quarter earnings performance. Given that, the market valuation could be more expensive.

3 If the preliminary figures of China’s manufacturing group come out unsatisfactorily, Asian stock markets and commodities could be pressured.

4 We retain our stock picks this month.

5 Stock picks: IRPC, IFEC (Inter Far East Engineering), BLA (Bangkok Life Assurance), TCAP (Thanachart Capital), KKC (Kulthorn Kirby), PTTGC (PTT Global Chemical), VNG (Vanachai Group), WHA, BANPU, IVL (Indorama Ventures), SYNEX (Synnex (Thailand)), SUPER (Superblock), QH (Quality Houses), SCB (Siam Commercial Bank), CEN (Capital Engineering Network), MCS (M.C.S. Steel), PTT, EVER (Everland).