Thursday, October 22, 2020

Investors advised to look out for opportunities despite volatility in Q4

Oct 01. 2020
Sukit Udomsirikul, SCBS managing director in charge of the research group
Sukit Udomsirikul, SCBS managing director in charge of the research group
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By The Nation

SCB Securities (SCBS) is advising investors to closely monitor markets amid signs of increasing volatility during the fourth quarter of this year. The volatility is driven by perceived positive factors, while investor focus shifts to negative risk factors.

The Stock Exchange of Thailand (SET) will continue fluctuating with important buy zones of between 1,160 and 1,200 points. The good news is that a Covid-19 vaccine will help boost market performance.

Three investment themes are recommended for the fourth quarter:

• Core Portfolios emphasising high quality individual defensive stocks;

• Tactical Portfolios emphasising high-quality stocks adjusting to global and local economic cycles; and

• S-curve Portfolios emphasising small stocks with outstanding growth stories and strong growth potential.

The SET Index is expected to close out the year at 1,300 points.

Sukit Udomsirikul, SCBS managing director in charge of the research group, said surplus liquidity will lead to an adjustment of the economy and asset prices away from current trends, with the economy slowly picking up despite a second wave of the Covid-19 pandemic likely to strike again with the coming winter.

Economic stimulus measures are unlikely to have an impact as normality slowly returns. Arising uncertainties surrounding the US presidential election and a No-Deal Brexit could send the market into rally territory.

Thailand’s GDP is projected to shrink by minus 7.8 per cent in 2020, an even lower level than the minus 5.9 per cent predicted earlier due to impacts from a slower than expected recovery of the tourism sector, including rising bad debts, unemployment and a stronger baht.

Considering the fourth quarter trend, prospects for the overall global economy and investment could be increasingly worrisome due to three primary risk factors:

• A slow, fragile, and uncertain global recovery with economic indicators showing further signs of a sluggish economy amid the potential of a second wave of the infections in many countries;

• Tightening US economic policies if Democratic Party candidate Joe Biden is elected president. Biden plans to increase the fiscal deficit by approximately $7 trillion over the next 10 years in support of government spending on social welfare and infrastructure projects.

He is also seeking to fund the rising fiscal deficit by boosting tax revenues to $4 trillion;

• Burgeoning geo-political risks worldwide over the past few months, with continuing tensions between mega economic powerhouses – US and China – as part of Washington’s long-term plan to prevent Beijing from ascending to power.

On the local front, the Thai economy appears to be recovering with the easing of lockdown measures and positive factors from digital transformation as a result of the Covid-19 pandemic helping speed up the adoption of digital technology.

Sectors hardest hit by the outbreak are tourism and logistics, which tumbled by approximately 50 per cent and 39 per cent respectively due to the travel ban imposed on foreign tourists.

As these two segments represent the lion’s share of the nation’s GDP, this decline has seriously impacted the overall economy. SCBS therefore projects that the Thai economy could nosedive even further, from minus 5.9 per cent to minus 7.8 per cent.

However, there are always opportunities in times of crises. With the pandemic boosting digital transformation and the SET Index based on prevailing fundamentals at a level of 1,300 points, the following stocks are recommended for the end of 2020:

• Core Portfolio: High quality defensive stocks like BAM, BDMS, CBG, EGCO, and GFPT.

• Tactical Portfolio: High quality stocks demonstrating strong adjustment capabilities in response to global and local economic cycles, like AP, PTT and TOP

• S-Curve Portfolio: Minor stocks with outstanding growth stories and strong growth potential, like AUCT, IIG, PRIME, SVI, WICE and ZIGA

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