Executive vice president – Research
Asia Plus Securities
This week will continue to see market corrections but limited downside risks.
Last week, the SET Index gave clear signals for market corrections. It’s normal for a stock market that has seen its index rise more than 200 points, or about 16 per cent from its bottom in the middle of January 2016. The rise was likely driven by capital inflows, particularly from foreign investors in the belief that the US Federal Reserve will not hike the policy rate in the first half of 2016. Proprietary portfolios’ had accumulative net purchases worth Bt18 billion. Simultaneously, no fundamental support was found as research houses gradually cut their estimates for this year’s GDP growth.
Thai listed companies’ 2015 performances were lower than expected. Only the increase in crude oil price was a positive factor, given a large proportion of energy group stocks that make up the SET’s market capitalisation. Given this situation, stock prices seem to have overtaken fundamentals. Once capital inflows weaken, the SET Index will enter a period of market corrections, which could lead to market volatility this week. Such corrections are not expected to be sharp with 1,350 points as the support level.
Commercial banks’ minimum lending rate cuts for only lending rates came out unexpected. ASPS also cut their estimated net profit by 5 per cent for 2016 and 3.3 per cent for 2017. This could pressure the SET Index for a period. The current interest rates may become the leading indicator of Thailand’s policy rate direction in the coming periods, giving more chance for the Monetary Policy Committee to slash the policy rate at its next meeting. If the policy rate is cut, new capital is expected to move into the Thai stock market due to widening market earnings yield gap.
The political situation becomes an interesting factor again, which could cause concerns for the stock market periodically, particularly after the completed draft constitution was criticised widely. This raised concerns over whether the draft will be given the green light by the public in the upcoming referendum.
This week, there will be only two trading days before the Songkran Festival. The SET Index is expected to tune in to market corrections with thinner trading value. Focus on stocks with specific strength. Thai Vegetable Oil (TVO) stands out in its dividend yield at about 8 per cent. The Erawan Group (ERW) gains from tax deduction during the Songkran Festival. MCS Steel benefits from the strength?ening Japanese yen.
Given the drops in both the banking and communication sectors, foreign investors were net sellers of Thai stocks worth about Bt4 billion during April 5-7 and proprietary portfolios were also net sellers of Thai stocks worth Bt2.2 billion.
Foreign investors’ sales became obvious, particularly in the SET50 Futures. In the last three trading days, they net sold short of over 16,000 contracts, leading to basis value between S50M16 and SET50 Index widening from minus 3 to minus 9 points, reflecting heaving foreign sales in S50M16. Foreign investors’ net long remains at 120,000 contracts since the beginning of this year. Be cautious. Their long situation compared to the SET50 Index is expected at 790 points. They gain 117 per cent in SET50 Futures. There is high probability for them to start sales.
Foreign investors and proprietary portfolios remain net accumulative buyers of Thai stocks worth Bt17 billion and 1 billion, respectively, from the beginning of this year. It’s highly likely to see gradual sales before the Songkran Festival. There could be risks for other stock markets’ volatility during our long holiday.
The US stock market is in the period of banks’ earnings announcements for the S&P500 and Bloomberg Consensus projects unsatisfactory results. If the results are as expected, the US stock market could swing with high volatility during our long holiday.