Despite SET rally, risks from Brexit remain

It was clear to investors that there would be insignificant impacts from Brexit on Thai economic fundamentals and listed companies’ earnings performance. Local institutional investors net-bought back to offset the post-referendum net sales. However, that does not mean the risks from Brexit will disappear from the Stock Exchange of Thailand. From now on, rapid capital movement will likely be seen and prompt money-market fluctuations.

We believe that the market upside remains limited. The resistance level of 1,450 points will likely be a key, with the target market earning-yield gap at 4.75 per cent and estimated 2016 EPS (earnings per share) at Bt88.7. 

The 1,450-points level was also the highest for the SET Index before Britain’s referendum. Strategically, at this level, investors who gain sufficient profit can take some of it, particularly from stocks whose prices increase to close to or higher than their fair value. 

There are two key issues for investment this week.

Investment in infrastructure. From July 6 to August 5, the State Railway of Thailand (SRT) will sell bidding documents for two urban rail lines (Pink and Yellow), expecting to finalise the tender results in mid-November. This is faster than previously expected. The Orange Line is expected to follow soon. The progress will provide good investment sentiment for construction stocks. Stock picks: CK (Ch Karnchang) and UNIQ (Unique Engineering and Construction).

TIP Report. The United States has upgraded Thailand’s status from Tier 3 to Tier 2 Watch List on its Trafficking in Persons Report. This will be a positive signal for the European Union’s consideration of the Thai fishery industry’s yellow card on IUU (illegal, unreported and unregulated) fishing soon. Such a development would be positive for investment in food-export stocks. Stock picks: TU (Thai Union Group) and CPF (Charoen Pokphand Foods).

Focus on stocks with high dividend yield like MCS (M.C.S. Steel), which gives about 6 per cent per year, has a backlog for the next three years, and makes twice-yearly dividend payments. PS (Pruksa Real Estate) also has annual dividend yield of 7 per cent with two payments a year. Its large income base helps reduce fluctuations in performance.

 

Prakit Sirivattanaket 

Vice President

Kasikorn Securities

 

The panic following Britain’s referendum vote to leave the European Union was easily forgotten when risky assets rebounded to the level they were at before the Brexit poll.

The SET Index has a chance to rally again on the back of mid and small caps. Most of them have seen stand-out second-quarter performance. 

Given some speculation, non-SET50 stocks rose 3.5 per cent while the SET Index increased only 2 per cent from June 27-29. SET50 edged up 1.2 per cent. The increases came mainly from more than Bt11 billion in purchases by local institutional investors. Some that is expected to be from purchase orders for LTFs (long-term equity funds) when the SET Index went below 1,400 points on June 24.

In this country, the plan for an August 7 referendum on the draft constitution continues on expectation for a general election early in the fourth quarter of 2017. Once the schedule for the election is clear, it will be a key factor to build up confidence for the Stock Exchange of Thailand and prompt consistent capital inflows after heavy sell-offs of more than Bt320 billion when the Thai political crisis took place from 2013 to 2015.

Historically, in the month before the August 19, 2007, referendum on the constitution, the SET Index plunged by more than 14 per cent. (It was market correction from profit-taking after the SET Index increased from capital controls between December 19, 2006, and July 27, 2007.) However, the SET Index jumped 4 per cent the day after the referendum and until mid-October 2007 consistently increased by more than 20 per cent.

The 2007 Constitution was implemented after the coup d’etat in September 2006. It was the first referendum on a charter drafted by the Constitution Drafting Assembly comprising people from several sectors. It was different from the current planned constitution drafted by the Constitution Drafting Commission consisting of 24 members.