SET Index gains despite Fed's signals

SET Index gains despite Fed’s signals

Thanawat Patchimkul

Head of Research

DBS Vickers Securities (Thailand)

 After those comments, the Stock Exchange of Thailand shed 2.4 per cent of its value in two days and dipped below the psychological 1,400 points level.

In October, the market gains were led by PTT, Airports of Thailand (AOT), CP All (CPALL), Bank of Ayudhya (BAY), and Tipco Asphalt (TASCO). The laggards were Kasikornbank (KBANK), U City (U), Siam Cement (SCC), Delta Electronics (DELTA), and CIMB Thai Bank (CIMBT).

Despite the hefty sell-offs later in the month, foreign investors bought a marginal Bt2.2 billion net amount of Thai shares in October. They have sold Bt106.3 billion net year-to-date.

Market uncertainties remain high going forward. Policymakers in developed markets will continue to influence market sentiments, apart from the weak economic figures.

Fed officials are equally divided, as three or four of them want to raise interest rates but another three or four clearly do not, as highlighted by DBS Bank economists.

European Central Bank officials have been sending the message to the public that more monetary easing is in the pipeline later this year should the euro zone’s inflation miss its target.

In Asia, China has sent a clear signal of an accommodating monetary policy by cutting its lending/deposit rates and lowering its reserve-requirement ratio.

The Bank of Japan kept its policy unchanged by keeping its 80-trillion-yen monetary-base expansion in place last Friday. Overall, each and all of the actions by these policymakers will set the market tone through the remaining period of this year, given that the Thai economy remains weak and lacks clear positive drivers.

For the Thai market, our only “overweight” sector is tourism, from which we have AOT, Asia Aviation (AAV) and Central Plaza Hotel (CENTEL) as our top picks.

Our highlighted investment choice for overseas markets in November is Chimerica ETF (Symbol: 3161) on the Hong Kong Stock Exchange. This exchange-traded fund invests in Chinese companies listed in the US market, such as Alibaba, Baidu, JD.com, Ctrip.com and NetEase, to name a few. The MSCI inclusion of these US-listed Chinese companies will be taking place by the end of November.

According to Enhanced Investment Products (EIP), the manager of Chimerica ETF, Deutsche Bank estimates US$63 billion in total fund flows as a result of the weighting change, half in November and half in May 2016. Thai investors are able to invest in overseas stock markets by opening an overseas investment account at participating Thai brokers.

Tisco Securities

We have further cut our estimates for earnings of large commercial banks to account for worse-than-expected credit quality and revenues in the third quarter. Accordingly, we reiterate our preference for mid-to-small banks – TCAP (Thanachart Capital), TMB – for signs of improvements in credit quality and cost of funds (CoF).

After the sector PBV (price-to-book ratio) re-rated to 1.1 times versus lower mid-term RoE (return on equity) of 12 per cent, the risk/reward ratio of large banks is no longer attractive.

Aggregate 3Q15 net profit of Bt43.5 billion for the eight banks under our coverage was in line with our estimates and consensus forecasts. While large commercial banks – BBL (Bangkok Bank), KTB (Krungthai Bank), SCB (Siam Commercial Bank), and KBANK (Kasikornbank) missed, mid-to-small banks beat our forecasts on credit cost/quality and core revenues (net interest income and fee and service income).

We cut sector earnings estimates by 1 per cent per annum for 2015-17, reflecting earnings downgrades of 3-8 per cent per annum for KBANK and SCB (worse-than-expected credit quality and revenues) and upgrades if 3-11 per cent per annum for other banks (better-than-expected revenues/room to lower CoF).

While accelerating sector NPL (non-performing loans) formation in 3Q15 was partly due to seasonally low economic activity (agricultural, exports, tourism), 3Q15’s SML (special mention) and restructured loans and post-results management tone hint at further NPL growth in 4Q15.

Outside the banking sector, we have turned more positive on domestic consumption and public investment but do not expect a broad-based recovery. Exports are still falling and private investment remains subdued. As China and Asean combined account for 40 per cent of Thai exports, we expect a slow recovery in export items throughout 2016. The low capacity utilisation rate (less than 60 per cent) suggests a private investment recovery should also remain slow going forward. Because of their limited upside, we have removed CENTEL (Central Plaza Hotel), CPALL and MINT (Minor International) from our top picks list and instead added DTAC (Total Access Communication) and ROBINS (Robinson Department Store).

As well as helping ADVANC (Advanced Info Service), the auction of fourth-generation telecom licences this month should benefit DTAC on regulatory cost savings and help reverse its revenue decline in 4Q15. We also expect ROBINS’ same-store sales growth to turn positive in 4Q15 given the reopening of six stores and a pick-up in spending spurred by government stimulus measures. The stock is currently trading at a four-year low and is now the cheapest Thai retailer in the sector.

Research Department

Trinity Securities

The Bank of Japan held off on further monetary stimulus at its policy meeting last Friday, maintaining its pledge to increase its monetary base at an annual pace of 80 trillion yen. Other key issues are the following.

1 The BOJ cut its estimate on next year’s GDP growth from 1.5 per cent to 1.4 per cent.

2 It cut its estimate on next year’s core inflation from 1.9 per cent to 1.4 per cent.

3 It rescheduled its targeted timing for inflation to climb to its target of 2 per cent from September of next year to the period starting from the fourth quarter of next year to the first quarter of 2017.

4 BOJ chairman Haruhiko Kuroda stated that he did not see any limitation for the Japanese central bank’s additional measures in the next periods.

This came as a disappointment, particularly Kuroda’s statement signalling no more concrete signs. That includes extension of the inflation target schedule, which lowers pressure on the BOJ’s monetary easing.

After the BOJ’s Friday policy meeting, we expect that a positive factor involving liquidity to support stock markets may not happen again until early next month when a meeting of the European Central Bank will take place.

The SET Index will reflect more market fundamentals through listed companies’ earnings performance. Based on the earning yield gap model that is used to find the SET Index’ short-term target with assumed earnings per share of Bt105.5 for next year and 10-year US bond yield of 2.1 per cent, the SET Index will be able to reach only 1,400 points. Underweight stock investment on expectation that the SET Index will not break through a resistance level at 1,400-1,410 points.