Amid sluggish global growth, encouraging new signs for Asia

Recent indicators have failed to signal any hope for growth acceleration in the latter half of this year. However, Asian countries still offer some encouraging signs. Sluggish external demand has hit exports of most countries. Nevertheless, emerging Asean countries are capable of offsetting the negative spill-over by raising government spending. Among Asean countries, our focus is on the strong infrastructure spending in Thailand, Indonesia and Malaysia. 

The markets, however, are volatile. In navigating around this market volatility, investors are recommended to stay with defensive sectors such as Consumer Staples, Telecommunications, and Utilities. Our regional strategist has upgraded Hong Kong/China to Overweight, citing the possibility of the inclusion of A-shares in the MSCI Emerging Market Index. Longer-term investors are advised to accumulate A-shares on currently low valuations. 

Thai investors may consider ETFs (exchange-traded funds) with A-share exposure, including iShares FTSE A50 China Index ETF (2823:HK) and CSOP FTSE A50 China Index ETF (2822:HK) listed on the Hong Kong stock exchange. 

We are upgrading the India market to Neutral from Underweight on improved fundamentals but are downgrading Malaysia to Underweight from Overweight on weak sentiment. The Thailand market is kept as Overweight, but select companies with solid fundamentals, strong cash flows, and specific sector drivers such as tourism. 

 

Tisco Securities

 

The Stock Exchange of Thailand extended its rally, aided by easing concerns over a near-term increase in the US federal funds rate (after weak US jobs data) and better-than-expected Thai macro numbers. Subsequently, we see an increasing possibility that the SET Index could overshoot our year-end target of 1,460 in the coming weeks, particularly if the US Federal Reserve decides to delay a rate increase further at its June 14-15 meeting.

However, we also learned from our recent marketing visits to local institutions that investors generally think the SET is unlikely to break the 1,500 barrier this year. Our bullish stance on some of the petrochemical, oil-linked and construction-material stocks (PTTGC, IRPC and SCC) as well as tourism plays (AOT) also seems to be in line with consensus, though our big-cap bank calls (KBANK and SCB) were not.

The SET has risen 4 per cent since its recent low of 1,382 on May 23 and is currently trading near year-to-date highs. The rally has been fuelled by renewed foreign buying, baht appreciation and fresh hopes that another Fed rate increase could be delayed after weak jobs data.

The market’s mood has also been lifted by stronger gross domestic product numbers, improving NPL (non-performing loan) formation for banks and resolution of major uncertainties in the Thai telecom space. In addition, there has been more positive news on government infrastructure projects, leading to an increase in buying interest in contractors such as STEC (Sino-Thai Engineering and Construction) and CK (Ch Karnchang) and the construction-materials sector.

Note that we have turned slightly more positive on retailers despite tepid consumer spending this year.

Although property stocks also saw significant gains last week, we remain cautious on the idea of a broad-based recovery for the sector. We continue to prefer low-rise developers such as QH (Quality Houses) and PS (Pruksa Real Estate) while viewing AP (Thailand) as the safest play among mixed property plays. Note that AP had the best presale numbers in May (up 105 per cent month on month and 57 per cent year on year), driven by low-rise launches and its Life 48 condominium (completely sold out).

 

Research Department

Trinity Securities

 

Some investors expect a higher possibility for the BOT’s Monetary Policy Committee (MPC) to cut the policy rate at its June 22 meeting. Thailand’s swap rate has hit its lowest point since last August. Although we expect the MPC to leave the policy rate unchanged, higher market expectations for a rate cut may prompt the baht to depreciate in the short term. This could mean short-term positive sentiment for the following industries.

1 Export-oriented groups: food, agriculture, electronics and tourism (electronics and tourism remain attractive as laggards).

2 High dividend-yield groups: property, property funds, REITs (real estate investment trusts).

3. Hire purchase.

This week, we forecast gradually higher market expectations on the MPC’s rate cut, and this could prompt the baht to tend to depreciate in the short term.