Brexit referendum casts a shadow over SET
Play
After reaching a high of 1,450 points, the Stock Exchange of Thailand (SET) Index witnessed profit-taking, proving it as the key resistance level on a fundamental basis.
(This is based on an assumption of a market earnings yield gap of 4.75 per cent at 2016 earnings per share at Bt88.7)
Other pressure factors include concerns over a “Brexit” vote, a downward revision of forecast US gross domestic product (GDP) growth to 2 per cent for this year and next, and no additional monetary stimulus by the Bank of Japan. The SET Index dropped to nearly 1,400 points late last week, reflecting some response to negative factors.
This Thursday, Britain will vote in a referendum to decide whether or not to remain in the European Union. There seems to be equal support from those wanting Britain to leave for social reasons and those demanding that it remain for economic and investment reasons.
The Brexit debate has already affected financial markets. A British exit could trigger panic selling, but the SET Index may rebound to stay above 1,400 points thereafter. If the United Kingdom continues its EU membership, the SET Index’ next target is 1,450 points. Before the referendum, the SET Index could move in a range of 1,410-1,435 points.
There may not be much impact on Thai listed companies’ profit estimates and Thailand’s real sector as a result of the Brexit vote as Britain accounts for only 1.5 per cent of Thailand’s total trade. However, the SET Index could move with volatility in light of global capital movement.
If a Brexit induces panic selling, investors could gradually buy stocks with solid fundamentals. Focus on stocks with high dividend yields, good performance and positive support factors, such as MCS (M.C.S Steel), SNC (SNC Former), SC (SC Asset), TCAP (Thanachart Capital) and ADVANC (Advanced Info Service).
Other stocks in the construction sector such as CK (Ch Karnchang) and UNIQ (Unique Engineering and Construction) are attractive for potential in large construction projects.
Prakit Sirivattanaket
Vice President
Kasikorn Securities
Financial markets have grown increasingly jittery in the run-up to Britain’s referendum on whether or not to stay in the European Union. A British exit would have a big impact on the global economy, as the EU economy is the world’s second largest and the British economy will likely worsen.
A Brexit would have five effects on Thailand.
1 Limited impact on Thai exports as a result of declining trade between Thailand and the United Kingdom.
2 Insignificant impact on Thailand’s foreign direct investment, given the small amount of UK FDI in Thailand.
3 The EU, including the UK, accounts for 20 per cent of total foreign tourists coming to Thailand. The euro and pound sterling are expected to depreciate by 15-20 per cent.
4 Concerns over a Brexit could affect demand for risky assets and stocks. However, with oil-price stability and improvements in emerging-market economies, it is not believed that capital will move out of emerging markets fiercely.
5 Business relationship between Thailand and Britain through exports and imports, FDI and tourism contribute only 1.7 per cent of Thailand’s gross domestic product, according to KResearch data.
The pound sterling has weakened 7.3 per cent year-to-date. In the worst case that the EU and UK cannot bring back confidence to the euro and sterling, these currencies will depreciate 15-20 per cent by the end of 2016. If the British government issues measures to counter its recession after the Brexit, the pound may remain steady at the current level of 1.414 per US dollar.
Under such situations, the impact on the Thai economy is expected to be limited to 0.02-0.04 per cent of GDP or about Bt3 billion to Bt5.5 billion. In the worse case of a 20-per-cent depreciation of the euro and pound sterling, the impact on the Thai economy is forecast at Bt8.9 billion to Bt20 billion, or 0.1-0.2 per cent of GDP.
Chaiyaporn Nompitakcharoen
Head of Non-institutional Broking Group
Bualuang Securities
The SET ended last week at 1,421.32, down 7.89 points (0.55 per cent) week on week. We anticipate that the market is likely to face downward pressure this week, for the following reasons.
First, investors will be jittery over the health of the global economy and fears over the rising probability of a “Brexit”. A referendum will be held on Thursday to decide whether Britain should leave or remain in the European Union. If the United Kingdom decides to leave the EU, global stock markets including the SET, should experience short-term sell-offs.
Second, from a technical standpoint, the SET is currently trading below its 10-day exponential moving average and many indicators point to “sell” signals.
Third, foreign money could be slow to enter the Thai stock market as the possibility of a Brexit looms.
Based on above reasons, we expect defensive or high-dividend stocks may benefit from fund rotation at the expense of the high beta equities. As such, we recommend EGCO (Electricity Generating), JASIF (Jasmine Broadband Internet Infrastructure Fund), GLOW (Glow Energy) and RATCH (Ratchaburi Electricity Generating Holding).
