Improving economic sentiment likely to push the SET upward to 1,460 points

Corporate results for the third quarter of 2015 will likely disappoint investors because of weak economic data. 

Thanks to the government’s stimulus package, the market could recover late this year on expectation of data improvements early next year. However, under a somewhat stretched market valuation on forward PER (price-to-earnings ratio) of 15 times for 2015 and 12.3x for 2016 (which partly assumes strong recoveries in most commodity prices in 2016), I personally believe that there is less conviction for a bullish market rally, instead of a strong bounce in a long-term bear market. 

In short, improving sentiment should push the SET Index upward to 1,460 this week. 

Stock picks are SAMART, SAMTEL (Samart Telecoms), MINT (Minor International), CENTEL (Central Plaza Hotel), and AOT (Airports of Thailand).

 

Prakit Sirivattanaket

Vice President

Kasikorn Securities

Last week, the SET Index rebounded by about 4.5 per cent, given capital returns. 

Foreign investors net-bought capital instruments worth more than Bt4 billion consistently from October 6-8. This followed purchases of about 62,000 SET50 futures from September 29 ti October 8. (Statistically, when more than 20,000 futures were bought on an accumulative basis, that correlated with purchases of capital instruments in the next five to 10 days.) 

Aside from futures and capital instruments, foreign investors also bought debt instruments worth about Bt12 billion from October 6-8.

Aside from Thailand, others in the region have seen capital flowing in. Foreign investors bought assets in the Philippines, Indonesia and countries in Northeast Asia. Regional currencies, thus, appreciated by more than 2.5 per cent on average. This was in contrast to the depreciation of the US dollar, which saw profit-taking after market concerns eased on the US Federal Reserve’s likely interest-rate increase. 

Capital started moving out of the US dollar and into risky assets across the world. Stock markets, commodities, gold, oil and even sugar have seen sharp rises in prices. It is only the beginning of capital movement, which could give opportunities for further rises by risky assets.

The turning point for capital movement was expected to come from the US labour figures, which came out much worse than expected on October 2. Non-farm employment increased by only 142,000 positions in September. Markets had expected a rise of 201,000 positions. The US unemployment rate stayed at 5.1 per cent. August’s non-farm employment was adjusted to 136,000 positions, compared with the earlier report of 173,000 positions. 

With unsatisfactory figures in the US labour sector, markets expect the Fed to be concerned about the US economy, which has been affected by the global economic slowdown. The interest-rate rises could be next year. 

According to Fed Fund Futures, there is a 10-per-cent probability that the Fed will raise its rate this month and a 32-per-cent probability for December. Before the announcement of US employment figures, the probabilities were 16 and 35 per cent in October and December respectively.

Our research team expects foreign investors to target mainly big caps with sharp drops in prices and attractive valuations in the energy, petrochemical and banking groups. Those with short sales during the August-September period could be particularly attractive with a high chance for cover short. 

The 20 stocks with the highest short sales during the period were PTT, KBANK (Kasikornbank), AOT (Airports of Thailand), KTB (Krungthai Bank), SCC (Siam Cement), PTTEP (PTT Exploration and Production), TRUE, ADVANC (Advanced Info Service), PTTGC (PTT Global Chemical), CPF (Charoen Pokphand Foods), SCB (Siam Commercial Bank), IRPC, BBL (Bangkok Bank), JAS (Jasmine International), ITD (Italian-Thai Development), DTAC (Total Access Communication), CPALL, BH (Bumrungrad Hospital), INTUCH (InTouch Holdings), and IVL (Indorama Ventures). 

Stock picks: PTT, PTTEP, PTTGC, SCB, and AOT.