By Thanawat Patchimkul
According to DBS Vickers (Thailand)’s investment strategy for the second quarter of 2017, we highlight several risk factors surrounding the markets this year.
Global factors are the successful implementation of US President Donald Trump’s economicstimulus policies, political uncertainties in Europe, and the pace of US interestrates increases, while domestic factors include the slower growth of the Thai economy compared with its neighbours.
At 4 percent growth, the Stock Exchange of Thailand’s earnings this year are on the lower end compared with other markets. Importantly, the SET’s valuation is getting expensive. Our SET Index target stands at 1,650 points, which is only a few percentage points away from the current level.
Our 2Q17 strategy is to focus on portfolio risk management by lowering the beta of the portfolio. We recommend that investors overweight defensive stocks with reasonable valuation, particularly those that have a solid track record in dividend payments.
Our top picks for this quarter are BCP (Bangchak Petroleum), HANA (Hana Microelectronics), KBANK (Kasikornbank), ORI (Origin Property), TU (Thai Union Group), and UTP (United Paper).
For overseas markets, we recommend iShares Edge Minimum Volatility exchangetraded funds (ETFs), which come with low betas compared with their benchmark indices.
Market sentiment has strengthened after a pickup in fund flows amid stronger macro data and the Bank of Thailand’s upgraded foreฌcast for growth in gross domestic product.
The SET Index has risen by 3 per cent from its March 13 low and looks set to challenge the 1,600 mark soon.
One positive market catalyst is the National Legislative Assembly’s decision to shelve (at least for a year) a plan to set up a national oil company, something that has been a major overhang on PTT and PTTEP (PTT Exploration and Production) over the last two weeks.
The SET Index is forecast to move sideways in a range of 1,5501,600 points in April for low volatilฌity and thin trading turnover as a result of long holidays in the month. The key factors are below.
1. Foreigncapital flows could be seen as satisfactory after the US dollar and US bond yield tend to stay low.
2. The global economic recovery has seen improvements, which could prompt high consumption of commodities, and this will be posiฌtive to the energy, petrochemical and agribusiness sectors.
3. Downside risk to crudeoil prices is limited after drops. We expect the Organisation of the Petroleum Exporting Countries to extend its capacity reduction at its May meeting.
4. The Thai economy will tend to recover in the next periods from improvements in exports and priฌvate investment.
Investment strategy: Given the SET Index’ high valuation, investors should consider stocks whose prices have not risen sharply and those with positive factors.
1. Commodity stocks: PTTEP (PTT Exploration and Production), STA (Sri Trang AgroIndustry)
2. Petrochemical stocks with upward spread: VNT (Vinythai), AJ (A.J. Plast)
3. Banking stocks with specific alpha: KTB (Krung Thai Bank)
4. Stocks which gain from the Eastern Economic Corridor: AMATA, ROJNA (Rojana Industrial Park), WHA