Parliament, trade war weigh negatively on SET
This week’s major issue could be centred on formation of the new government.
Given the political developments, there’s a lowered chance to see a stable government. One more concern in light of the political situation is review of the fiscal 2020 expenditure budget, which will begin October 1, 2019. The first parliamentary reading is expected this September. The first budget disbursement is estimated for early 2020, a possible delay which could lead to negative impacts on the economy. The current situation needs economic stimulus from all economic sectors in the country.
The overall US-China trade war remains negative, given both countries’ continuous retaliatory measures, and the risk to money-market investment. Capital is expected to move into safe-haven assets, particularly bonds. The US and Thai 10-year bond yields have dropped significantly.
Based on both factors, the SET Index may not be able to rise above 1,630-1,640 points with a downside at 1,600 points. Now, we prefer stocks with sound fundamentals and high dividend yields like LH, BBL, SCCC and EASTW. - Therdsak Thaveeteeratham, Executive Vice President / Research, Asia Plus Securities
Thailand is investment
target amid volatility
The overall stock market remains gloomier from negative developments of the US-China trade war with possible retaliation by non-tariff measures from the US, and a continuing global economic slowdown. The Thai bourse may not see too much negative response due to several support factors – possible US-China agreements in the June G20 meeting, China’s additional economic stimulus and drops in global interest rates.
Locally, we expect strong 1Q19 earnings results as a positive for investors. Even though the Thai political developments may not be smooth, the new government is expected. The SET Index is not expected to stay out of short-term limits.
Given concerns over trade conflicts that may negatively affect oil demand, we expect crude prices to swing down to wait for the June 26 Opec meeting and the trade negotiation results. The SET Index is projected to outperform its regional peers as 1) Thailand returns to democracy; and 2) Thai stock market as the low beta stock. Despite its low growth, it is more stable (with current account surplus and low external debts) than other emerging stock markets and could yield higher returns amid high market volatility.
In this round of market corrections, the support line is 1,600-1,620 points. In the worse case, the gauge is not expected to stay below 1,590 points (8 per cent discount from our targeted SET Index at 1,725 points) based on an assumption of satisfactory US-China trade negotiation results.
We pick CPALL (fundamental price at Bt82.0). Its 1Q19 results rose both YoY and QoQ with SSSG support. 2Q19 performance is expected to be stronger than the previous quarter from longer holidays and a warmer than normal summer. We also like DTAC (fundamental price at Bt55.37) as 5G delay will be positive to the communications group due to less market concerns on large 5G investment. Upside is higher than 15 per cent with 2.3 per cent dividend yield. Profit will jump from improved GPM in light of less competition, lower depreciation amortisation. We see CPN (fundamental price at Bt90) as positive from acquisition of a 10 per cent stake in Grab (Thailand) and re-rating P/E from entry into new-economy business. - Passakorn Linmaneechote, Deputy Managing Director / Research, Kasikorn Securities
Volatile markets in US
with downward trend
We see stock markets, particularly in the US , with a sign for downward trend to be relatively volatile. Dow Jones Industrial Average closed below its 200-day average. S&P500 and Nasdaq closed at 200-day averages. VIX, a measure to assess volatility of the US stock market, currently stays at 17-18 and tends to increase to 20 after more retaliation between US and China. The Asian giant ceased its soybean purchase from US but did not cancel the previous purchase orders, so US farmers are expected to get hit. China also plans to retaliate by limiting rare earths exports to the US
The US also warns Mexico that tariffs may increase until the migrants matter is solved. Global crude demand is expected to be affected in the latter half of this year from global economic slowdown as a result of the trade war between the US and its trading partner countries.
We project, in the short term, Brent crude price’s support line at US$62 and major support line at $57. Short-term resistance in one month is at $68, pressuring Thai energy stocks: upstream (PTTEP and PTT); and refineries (TOP, PTTGC, BCP, IRPC, SPRC, ESSO) with estimated stock losses in 2Q19. Cuts in this year’s estimated crude prices are expected. Investors may slow investment in energy stocks or wait for a sign for resumed US-China talks. It is expected when US stock market drops sharply in this June. - Saravut Tachochavalit, Senior Vice President, Research Department, RHB Securities (Thailand)
