Marketwatch

  THANAWAT PATCHIMKUL
Head of Research
DBS Vickers Securities (Thailand)

THE US Federal Open Market Committee is now behind the curve and needs to raise benchmark interest rates to normal levels, according to DBS Bank’s economic research team. This suggests quarterly rate rises over the next eight or nine quarters to a normalised level of around 3 per cent per annum. The market is now underestimating the pace of rate increases.
Recent evidence suggests the acceleration of inflation in the United States remains intact. April’s Producer Price Index rose to 2.5 per cent year on year from 2.3 per cent in March. Consumer inflation will follow suit. 
The US labour market is tight with a very low unemployment rate of only 4.4 per cent in April. It might be difficult for the unemployment rate to move down much further as the labour market faces structural issues such as a lack of qualified workers for certain jobs or the need for skilled workers to relocate to a distant workplace. 
Wages are on an uptrend, as US employers begin to bid for skilled labour. Rising wages could translate into solid consumer demand.
As the market is underestimating the pace of interest-rate increases, market jitters are likely to emerge in the next few months. We believe this nervousness could take a toll on the sentiment for real estate investment trusts, as it did late last year. It is advisable for investors to increase their position in REITs on any signs of price weakness. 
Investors could consider putting money into “NikkoAM StraitsTrading Asia ex Japan REIT ETF”. The fund offers the opportunity to diversify one’s REIT exposure to key REIT counters across Asia such as Singapore, Hong Kong, China, Malaysia and Indonesia. 
Asia ex Japan REITs are superior to global REITs in terms of growth and yield. The yield of the Nikko AM Asian ETF is around 5 per cent. 
Investing in overseas REITs comes with inherent risks, and we recommend that investors obtain and analyse detailed information before making any decisions.

RESEARCH DEPARTMENT
Trinity Securities

This week, mid caps and small caps will continue to confront equity drawdowns. Small caps have underperformed big caps since last October. We had anticipated this situation, given a significant drop in participation of retail customers from 55 per cent to 40 per cent.
The main reason is a loss of some financial liquidity, reflecting from a 3.25-per-cent rise in M2, the lowest since the Lehman crisis. As long as the situation continues, mid caps and small caps will continue underperforming against big caps, although some companies will see attractive valuations. 
Our top picks this month focus on energy, the petrochemical group – PTT, PTTEP (PTT Exploration and Production), PTTGC (PTT Global Chemical) – and commercial banks – SCB (Siam Commercial Bank), TISCO, TCAP (Thanachart Capital).
Investment strategy: The SET Index support line of 1,540 points is attractive for purchases on the Stock Exchange of Thailand. Downside risk is limited as there are signs for rises in profit estimates (led by petrochemicals), which will make valuations more attractive. Focus investment on the following groups. 

1. PTT, PTTEP, PTTGC.
2. Commercial banks with attractive valuations: SCB, TCAP, TISCO.
3. Groups with gains from drops in copper prices: electronics.
4. Groups expected to be included in the SET50 in the next round: BJC (Berli Jucker), EA (Energy Absolute), BPP (Banpu Power), RATCH (Ratchaburi Electricity Generating Holding), MTLS (Muangthai Leasing), SCCC (Siam City Cement), TISCO, JAS (Jasmine International).