Near-term upward momentum to continue

Money is flowing back to risky assets given that the underlying fundamentals have not improved. Foreign investors turned into net buyers of Thai shares worth Bt5.8 billion during the period. The buying amount is still small compared with the net Bt103 billion worth of Thai stocks that overseas investors have sold year-to-date. 

Major drivers of the market were large caps in various sectors including banks, oil and gas, construction materials, and ICT (information and communications technology). The leading stocks were PTT, BAY (Bank of Ayudhya), KBANK (Kasikornbank), SCB (Siam Commercial Bank), PTTGC (PTT Global Chemical), and AOT (Airports of Thailand).

Although surrounded by global risks, things are, in fact, beginning to look brighter for the Thai economy. A DBS Bank economist pointed out that manufacturing had rebounded since hitting a four-year low in June. Capacity utilisation is also improving accordingly. 

Improving exports is crucial going forward, but the government’s fiscal measures will be an important factor to shore up the economy well into 2016. 

It might be too early to conclude that the Thai economy has seen a bottom, as utilisation is still below 60 per cent, a level not seen since 2009, except during the aftermath of the 2011 floods, according to the economist. 

The Stock Exchange of Thailand should continue its upward momentum towards the end of the year given that the US interest-rate increase is seen to be pushed back into 2016. As mentioned, fundamental weakness has not changed. 

The market uptick is largely dominated by the increasing risk appetite among investors, and the market will be volatile. 

For Thai shares, we believe that key large-cap counters will continue to head up. Our favourite sector is still tourism. We like AOT, AAV (Asia Aviation), and CENTEL (Central Plaza Hotel).

Tisco Securities

 

The Stock Exchange of Thailand has surged 5.6 per cent month-to-date thanks to renewed fund inflows amid early indications that the Thai economy has finally bottomed out. 

After a long stream of negative macro data, investors are beginning to get some positive economic news. First, the Thai Industries Sentiment Index rose to 82.8 points in September from 82.4 in August, snapping an eight-month streak of declines. Second is a 28-per-cent year-on-year jump in car exports in September after a 14-per-cent rise the previous month. And third, new government stimulus measures should benefit upcountry areas, small and medium-sized enterprises and home buyers, as well as spur foreign direct investment.

The external picture also looks brighter, with a US interest-rate increase pushed back to 2016. Deutsche Bank now believes the US Federal Reserve won’t raise rates until next March. Meanwhile there are growing expectations among economists that the Bank of Japan and European Central Bank will soon expand their quantitative easing programmes because of continued economic softness in Japan and Europe. This week the market’s focus will be on third-quarter results reported by banks. 

Our analyst expects banking-sector non-performing to peak in 3Q15 on conclusion of the Sahaviriya Steel Industries saga, and correspondingly projects a jump in sector credit costs to 177 basis points (from 131bps in 2Q15). While the analyst is no longer bearish on the sector, she is still not bullish because of a lack of GDP/loan growth catalysts. Her only “buy”-rated stock in the sector remains TCAP (Thanachart Capital) based on its improving credit quality, absence of extra provisions quarter-on-quarter, and NIM (net interest margin) recovery.

We are more optimistic on the retail sector, where another of our analysts forecasts “decent” earnings growth year-on-year in 3Q15. Although she has revised down her 2015-17 earnings forecast for retailers to reflect continuing weak consumer spending, she expects stronger results in the final quarter on the low-base effect, onset of the high season, and boost from the government’s stimulus package. 

Her top picks are CPN (Central Pattana; cheap valuation and strong growth outlook on new malls/NLA jump) and CPALL (most resilient retailer, direct beneficiary of upcountry stimulus and upside potential from MAKRO stake sales).

Other stocks we like at current levels are ADVANC (Advanced Info Service; expected beneficiary of November spectrum auction), AOT (Airports of Thailand; a direct play on the country’s tourism-industry growth) and QH (Quality Houses; superior outlook for low-rise residential presales and strong launches plans versus peers). 

 

Research Department

Trinity Securities

 

Weak US economic figures came out as positive news to emerging markets as investors expected the Federal Reserve to postpone its interest-rate increases. 

Recently, the Fed fund futures indicated only 6-per-cent probability of a US rate hike this month and 30 per cent for December. This factor pulled down US bond yields and the US dollar, which has become positive to the direction of capital movement.

Importantly, the US dollar’s depreciation has given space for central banks across the world to continue their monetary easing. The Bank of Japan is expected to increase its quantitative easing at its October 30 meeting after the yen appreciated to 119 per US dollar. 

Given the SET Index’ rises, we have to consider the Stock Exchange of Thailand’s fundamentals, including listed companies’ profits. There have not yet been any signals for upward revision of analysts’ profit estimates. The safest strategy is to sell stocks to lock in profit every time the SET Index rises.

In the short term, we are not moving up the SET Index’ 1,430-point upper range as there are no signs of upward revision of listed companies’ estimated profits. Therefore, investors may take some profit when the SET Index surpasses 1,430 points.