Market Watch

Tisco securities 

We believe prospects look brighter in 2017 and expect market sentiment to be supported by Thailand’s continued economic recovery, the bidding spree for infrastructure projects, reforms of state-owned enterprises (SOEs), new spectrum auctions and partnerships for mobile telecommunication providers, and progress towards a general election at the end of the year or early in 2018.
Our SET year-end target of 1,650 points remains intact, with the market driven by the following themes:
l nfrastructure-project bidding to be completed in March or April, benefiting contractors and SCC (Siam Cement);
l SOE reform (laws to be endorsed around April), benefiting PTT and AOT (Airports of Thailand);
l Telecom valuation reversion. We expect that both ADVANC (Advanced Info Service) and INTUCH (Intouch Holdings) to maintain their 100-per-cent dividend pay-out policy and see better prospects for DTAC (Total Access Communication) for spectrum acquisition this year;
l Domestic consumption recovery, aided by government stimulus measures (CPALL);
l Higher oil prices (PTT and PTTGC). Note that Deutsche Bank’s commodities team forecasts average crude-oil prices of US$55 a barrel in 2017 and $65 in 2018.
The SET has now risen for eight straight sessions, bringing its gain to 4.5 per cent since its recent low of 1,504 on December 22. Short-term profit-taking, coupled with possible LTF (long-term equity fund) redemptions this month, could trigger a correction, although Thai equities should get support from excessive liquidity in both domestic and global financial markets.
The key downside risks to our forecasts this year are: 
1. macro shocks such as an accelerated schedule for US interest-rate increases; 
2. baht weakness (DB sees a forex rate of Bt37 per US dollar by year-end; 
3. election delay (if this happens, we expect the election to be held in the first quarter of 2018); 
4. slower-than-estimated infrastructure-project bidding process; and 
5. weaker-than-expected consumption recovery. 
Upside risks include higher-than-predicted crude-oil prices.

Research Department
Trinity Securities

This year is expected to see market volatility again. We forecast 12 key circumstances in 2017.
1. The SET Index is forecast to swing in a range of 1,350-1,620 points with downward risks from the current 1,540.
The upside 1,620 points was based on forward P/E (price-to-earning ratio) of 15.1 times, and estimated 2017 EPS (earnings per share) of Bt117. The forward P/E of 15.1 times is comparable to +1SD from the average after the US-led financial crisis and we see it as relatively high. The downside 1,350 points is referred on the earning yield gap, with the assumed US 10-year bond yield of 2.5-2.6 per cent.
2. It is highly likely that the Stock Exchange of Thailand’s average daily trading turnover will not reach Bt57 billion as the SET targets.
Foreign investors are expected to see lesser role, given the trend for capital to flow back to developed countries, particularly in the latter half of this year.
3. Small and medium caps (non-SET50) will outperform big caps (SET50) for the ninth consecutive year, given the lesser role of foreign investors that will lead to less major support for big caps; risk appetites of local investors that remain high and will have a more positive effect on small and medium caps; and interesting growth rates of several small and medium-sized firms.
4. Growth stocks (sSET) will outperform dividend stocks (SETHD).
Normally, when bond yields rise, dividend stocks underperform for less return. An exception is when companies announce higher dividends or stock prices fall so that dividend yields rise again.
5. MSCI Developed Market (MXWO) will outperform MSCI Emerging Market (MXEF). Several listed companies in the US will gain from a likely reduction of corporate income tax and other economic stimulus under the administration of US president Donald Trump. Other developed countries will start to see positive signs for their economic figures, such as in manufacturing.
6. The baht will depreciate from the 2016 average of 35.28 per US dollar. Capital will likely flow back to the US, given the Homeland Investment Act and the Federal Reserve starting to withdraw liquidity in the system.
7. BCOM (Bloomberg Commodity Index) will give positive returns.
Commodity prices are expected to improve after likely higher inflationary pressure around the world. The prices are forecast to rise despite the appreciating US dollar. Overweight commodities in energy, industrial metal and agricultural products.
8. Gold will provide positive returns from the current $1,160 an ounce.
Gold will gain from likely higher inflationary pressure that could prompt real interest rates to remain low, risks in Europe, particularly exits from the euro zone and terrorism, and a fall in the real gold price to a long-term average.
9. The crude-oil price on average will be higher than the 2016 average of $43.13 per barrel. 
Crude-oil demand and supply are expected to move into more balance as a result of the Opec (Organisation of the Petroleum Exporting Countries) and non-Opec countries’ agreement to reduce production. Demand for energy will likely rise after an improvement of the global economy.
10. Thai government bonds’ yield curve will be steeper than last year.
Long-term bond lend tends to go up on, first, higher supply of domestic bonds as a result of the government’s demand for fundraising to finance infrastructure projects, and second, pressure from rises of US bond yield. On the contrary, short-term bond yield will likely be influenced by Thailand’s policy interest rate, which is expected to remain low.
11. The US Federal Open Market Committee will not raise its policy interest rate more than three times.
Janet Yellen will hold the Fed chair for one more term. New FOMC members are more dovish than last year. Thus the Fed will continue its rate increases at a gradual pace. 
12. The Bank of Thailand’s Monetary Policy Committee (MPC) will leave the benchmark rate unchanged throughout this year or raise it no more than one time in the latter half of 2017.
We do not expect the Fed to accelerate its rate increases this year and, as a result, the MPC is not likely to be under any pressure to rush its rate increases to keep exchange-rate stability amid Thailand’s economic situation with downward risks.