High cash level could aid market recovery
According to the macro-strategy report by DBS Group Research, cash in Asian ex-Japan funds are still above the average level, suggesting that despite the easing Fed headwinds, positioning is yet to support the bullish view.
We believe these concerns are valid, as markets still need to climb a wall of worry over trade tensions, currencies, Brexit, European political risks, US politics, and growth downgrades.
Meanwhile, markets have been pushed to oversell above the technical levels while the Volatility Index is hovering at low levels, suggesting that short-term reversals may be imminent.
We look for growth downgrades to end in March, after the earnings season, and also details of US-China trade deal to revive sentiment.
From a half-full market perspective, high cash levels imply that there are bullets for the markets to recover after this soft patch. A trade deal, which includes a withdrawal of some past import tariffs, could be hugely positive for markets.
Meanwhile, China’s top legislature, the 13th National People’s Congress, will hold its second annual session in Beijing this month.
We expect policy guidelines to emphasise on growth-supporting measures. In our view, an outright corporate or personal tax cut will be hugely positive for the Chinese market sentiments. – Thanawat Patchimkul, Head of Research, DBS Vickers Securities (Thailand).
SET investors should seek safe havens
Next week, the SET Index is expected to swing in a range of 1,600-1,700 points. We estimate the SET Index at above 1,660 points, based on next year’s estimated earnings.
If based on this year’s earnings forecast, the market’s forward price to earnings (PE) is over 15 times. If the index is traded on next year’s market valuation, preliminarily we will set forward PE at our magic number – 14 times or 1,690 points, the level leading to our resistance of 1,700 points this month.
Stock picks: We prefer slowing down new investment and to pick three groups as safe havens.
1 Big caps with high dividend yields and laggard prices – BBL, PTTGC, BCP (KTB and SCB are cut, given risks to book higher staff expenses and SCB’s risk for a likely reduction of weight in the MSCI if the new regulation is applied.)
2 Tourism-related stocks – AOT, AAV, ERW, CENTEL, SPA, BEAUTY, DDD, TKN
3 Stocks in which negative news have already been priced in – BDMS, BPP, CK (PLANB and BJC have been out of our list due to sharp rises in prices after our picks. – Research Department, Trinity Securities.
