With upside potential limited, investors will need to be selective in stock pickings

In the economic assessments, the DBS economic team believes the global economic recovery is on track and on a broader base. However, on the current market valuation, the upside is limited unless there are upgrades in earnings. Investors should be selective now.
Our regional strategist believes Asean is less vulnerable to global monetary tightening this time. After keeping the China/Hong Kong market overweight for several quarters, DBS strategist has downgraded the markets to “Neutral” for the fourth quarter but for longerterm investors, the two markets are still worth holding into 2018.
For Thailand, there are encouraging signs that the economy is moving faster than initially anticipated, which leads to a growth upgrade. The marฌket is still the laggard this year. Similarly, Malaysia’s economy is improving and domestic sentiment is picking up. Both markets are rated as overweight in 4Q17, on par with Philippines.
Other markets on which we have “Neutral” weightings are Singapore, Indonesia, and Korea. The underweights are India and Taiwan as both markets have already performed well this year.

Tisco Securities
The SET’s threeweek rally appears to have caught additional ‘tailwinds’ this month thanks to the more favourable macro environment. Investors have been cheered by easing geopolitical tensions, increasing uncertainties over the US Federal Reserve’s willingness to stick to its original rate hike and balance sheet reduction schedule (as seen by differing opinions within the Fed recently) and rising oil prices.
Subsequently, the Thai market has seen a surge in foreign inflows for both equities and bonds. Combined with continued support from investors buying, the SET was able to break through the 1,650 resistance level
With the SET just 60 points shy from our yearend 2018 target of 1720 (as of September 14), there is a real possibility that the market could get to our 2018 target early. From a valuation perspective, the SET would have to trade at a higher forward price to earnings (P/E) multiple (15 times for overall SET, and 16x for the nonenergy P/E). Since the SET (excluding energy and petrochemicals) is still trading below its sevenyear high, this is certainly possible. However, we caution that without meaningful earnings per share (EPS) growth to support the rise, such elevated P/E levels are rarely sustainable, and a reversal in global macro sentiment could easily cause the index to derate back towards our current 2017 yearend target of 1660 or lower.
We think the best strategy at this point is to pick companies with a strong potential for yearonyear EPS growth in the second half of the year, and potential to remain outperformers through the first half of 2018. If the market consolidates, these stocks should have limited downside. If the market keeps rising, they should continue to outperform. We identified several companies that fit this bill.
Subsequently, we added TMB, TCAP, IRPC, PTTEP, QH and INTUCH to our model portfolio to round out our existing infrastructure theme (CK, UNIQ, SCC), tourism/commerce recovery (AOT, CPALL), telco event plays (TRUE, DIF), SME focused banks (KBANK) and property (AP). Key risks to our index target are renewed concerns over a Fed rate hike and balance sheet reduction, worse than expected third quarter earnings and a delayed election.

Research Department
Trinity Securities
The US Federal Open Market Committee (FOMC)’s September 1920 meeting is this week’s most important factor for monitoring. Interesting issues then involve details of the Fed’s planned reduction of its balance sheet, Fed chairman Janet Yellen’s statement and Dot Plots for the US benchmark rate’s movement.
If Dot Plots insists on the Fed Funds rate’s rise for the rest of this year, investors could turn to price in markets which could push up bond yields and US dollar and affect capital movement in emerging stock markets later.
This issue could prompt upside risk for bond yields and US dollar in the next periods. The upside scale may be not much as the US tax reform has not been through the Congress yet. In terms of investment strategy, investors may find ways to hedge against this risk through some exposure in stocks which gain from the baht depreciation. These stocks include those in the laggard electronics and food groups with limited downside risk. Stock picks: HANA, KCE, SVI, CPF, TU, GFPT.

Investment strategy
We still weigh on the SET Index’s high valuation. There remains no sign for increase of estimated EPS in the market. With the SET Index at above 1,600 points, we suggest holding more cash than the normal level. If investment is necessary, focus on safehaven stocks:
1) Exportoriented stocks, which will likely gain if the baht depreciates in next periods: CPF, TU, GFPT, HANA, KCE, SVI
2) Construction stocks which will likely benefit from the government’s investment projects: CK, STEC, UNIQ, SEAFCO
3) Stocks for speculation in the next two weeks from pressure on the Monetary Policy Committee’s policy rate cut: CPALL, BJC, ANAN, AP, S11.