Market Watch

  THANAWAT PATCHIMKUL
Head of Research
DBS VICKERS SECURITIES (THAILAND)

AS THE MARKET anticipates the US interest-rate increases after the meeting of the Federal Open Market Committee in June, returns from Singapore real estate investment trusts have reached a record high. 
The S&P Singapore REIT (Singapore Dollar) Total Return Index fell late last year when investors were spooked by prospects of the Fed cranking up interest rates. However, the index has recovered rapidly since December and reached a new record high last month. 
Since then, the SG REIT Index has been hitting new record highs almost every week through May. Its yields are around 5-8 per cent.
Global investors are back in the hunt for yields in Asia. During the past several weeks, US-listed ETF (exchange-traded fund) fund flows indicated that investors had reduced their positions in US equities for higher exposure to European and Asia-Pacific equities. 
Net inflows were also very strong for emerging-market bond ETFs, according to the DBS Group research team.
Even in developed economies in Asia, we witnessed activities revolving around the hunt for yield. 
During the first quarter of this year, outward portfolio investments for Taiwan registered a record-high level of US$34.2 billion, a significant increase from the quarterly average of around US$20 billion in 2016. This signals a change in trend since 2015 when insurance companies and other financial institutions ramped up their investments in foreign bonds and high-yielding assets. This should not be a surprise given that Taiwan’s 10-year government bond yield is currently around 1 per cent.
DBS REIT analysts recommend Ascendas REIT and Keppel REIT for the office market. Our picks for industrial REITs are Mapletree Logistics Trust and Frasers Logistics & Industrial Trust. 
For hospitality, we recommend CDL Hospitality Trust. 
Thais can invest in these REITs directly by opening overseas trading accounts with Thai brokers. They should be cognisant of the accompanying risks before investing.

TISCO SECURITIES 

The Stock Exchange of Thailand has recovered 32 points or 2 per cent since its recent low of 1,537 on May 5, driven by bargain-hunting by local funds and a rise in global oil prices, which boosted energy stocks. 
However, we believe further near-term upside is limited given the absence of new catalysts, weak first-quarter results and an expected US Federal Reserve interest-rate increase in June. There is also a risk that energy stocks could see a bout of profit-taking after Thursday’s 5-per-cent plunge in oil prices when investors were disappointed that Opec (the Organisation of the Petroleum Exporting Countries) did not cut output further.
The market should get some support from the recent wave of MRR (minimum retail rate) cuts by banks. This is good news for small and medium-sized enterprises and the retail sector although they will put further pressure on the banking sector’s earnings. Our analyst’s sensitivity analysis indicates that a 50-basis-point cut in MRR alone would affect 2017 earnings of mid-to-large-sized commercial banks by 5-11 per cent.
In general, big banks and TMB would be hit hardest, while BAY (Bank of Ayudhya), TCAP (Thanachart Capital) and KKP (Kiatnakin Bank) would be affected the least. However, if banks can reduce deposit rates or tighten liquidity, thereby lowering cost of funds, the impact on 2017 earnings from the rate cuts falls to only 1-8 per cent.
Note that we have raised our target price for DTAC (Total Access Communication) from Bt52 to Bt60 after news that the company has been chosen as TOT’s 2,300-megahertz-spectrum partner. Our telecom analyst expects that DTAC will be very aggressive in building out its network and striving to attract data-hungry post-paid users. With this spectrum, DTAC could potentially host 12 million subscribers on all-you-can-use data plans, which would double its current post-paid base.
However, we have downgraded our rating on ADVANC (Advanced Info Service) to “hold” and cut its target price from Bt190 to Bt170. We already have a “hold” rating on TRUE but our TP is lowered from Bt7.80 to Bt6.80 based on DTAC’s expected resurgence and stiffer industry competition.

RESEARCH DEPARTMENT
TRINITY SECURITIES

Crude-oil prices dropped as expected after no more agreements were made between Opec (Organisation of the Petroleum Exporting Countries) and non-Opec countries, aside from extending a deadline for the cut in production at 1.8 million barrels per day for nine more months. 
The move will have short-term impacts on energy and petrochemical stocks. Take profit before the next oil producers’ meeting.
Other big caps aside from energy/petrochemical will likely outperform in the short term, given satisfactory capital movements in the stock and bond markets. This is the key to the baht, which recently appreciated to 34.08 per US dollar, a nearly two-year record.
We update the following list of stocks expected to be included or excluded from SET50 and SET100 in the next round, which will take effect on July 3. The data are based on May 23 (the actual data for the two indices will be run to May 31).
Stocks expected to be included in SET50: BJC (Berli Jucker), EA (Energy Absolute), BPP (Banpu Power), RATCH (Ratchaburi Electricity Generating Holding), SCCC (Siam City Cement), MTLS (Muangthai Leasing), TISCO (Tisco Financial Group), JAS (Jasmine International). 
Stocks expected to be excluded from SET50: PSH (Pruksa Holding), CENTEL (Central Plaza Hotel), CK (Ch Karnchang), BCP (Bangchak Corporation), WHA (WHA Corporation), BA (Bangkok Airways), THAI (Thai Airways International), PTG (PTG Energy). 
Stocks expected to be included in SET100: BJC, EA, BPP, RATCH, SCCC, JAS, GL (Group Lease), BCPG, WORK (Workpoint Entertainment), MEGA (Mega Lifesciences), GFPT, ANAN (Ananda Development), MALEE (Malee Group), PTL (Polyplex Thailand). 
Stocks expected to be excluded from SET100: TTW, VIBHA (Vibhavadi Medical Center), HANA (Hana Microelectronics), VNG (Vanachai Group), SPCG, SAMART (Samart Corporation), ICHI (Ichitan Group), THANI (Ratchthani Leasing), SGP (Siamgas and Petrochemicals), TTCL, SCN (Scan Inter), RS, KAMART (Karmarts), IFEC (Inter Far East Energy Corporation). 
Investment strategy: Hold stocks to let profit run as capital movement remains satisfactory. After taking profit in energy and petrochemical stocks, the following stocks are our picks. 
Laggard big caps: BDMS (Bangkok Dusit Medical Services), LH (Land and Houses), SCB (Siam Commercial Bank), TU (Thai Union Group).
Likely stocks with laggard prices in SET50: BPP, JAS.
Stock with laggard price to be included in MSCI Small Cap late this month: PTL.