Large stock holdings make more corrections likely
SET likely to decline further as selling sprees by LTFs yet to be seen
In the past two weeks, the SET Index has been undergoing corrections as expected, with its P/E falling from 18 to close to 16. Such market corrections reflected concerns over Europe’s sovereign debt crisis, the baht’s appreciation, the domestic political situation and tensions on the Korean peninsula.
Despite the recent sharp drops, ASP Research expects more market corrections, given the short correction period. Besides, taking other elements of the SET Index into consideration, it’s possible to see market corrections for a while under several conditions.
Major investor groups are holding more stocks than normal. Foreign investors’ shareholdings through NVDRs rose to 7.47 per cent, a historical high. From November 29, 2011 to the present, foreign investors’ outstanding accumulative buys stood at Bt80 billion, while domestic institutional investors, from the beginning of this year to the present had net accumulative purchases of about Bt35 billion.
Besides, no selling spree from LTFs, whose unitholders bought in 2009, has been seen yet. Their cost basis was Bt25.8 billion at the SET Index of 674 points.
Many more active accounts of retail investors have been found. Margin loans (eight companies in ASP’s coverage) jumped over 70 per cent last year. Based on such conditions, it could take some time to bring shareholdings in balance.
The Thai bourse’s current P/E stays at about 16.7 times, which is equivalent to the earnings yield gap (like a risk premium for capital movement from bonds to equities) of about 3.11 per cent (market earnings yield less one-year bond yield). Such an earnings yield gap is very low, compared to the average of over 5 per cent. The figure points to an opportunity for new capital to flow into the bond market rather than the equity market.
Several issues need to be monitored. The appreciating baht may trigger worries that the Bank of Thailand may need to launch some intervention measures, besides its usual monetary moves. And that may put pressure on stock trading.
Tensions on the Korean peninsula also raise some concern even if many expect no severe crisis. However, it things go awry, stock trading will be affected significantly.
During this period, a 30-per-cent equity holding in portfolios is suggested for an investment strategy, while 20-30 per cent for short-term trading. Stock picks are the information and communications technology group with INTUCH and property development group with RML and SIRI. The remaining investment in portfolios should be used for accumulative buys of shares at the SET Index with the current P/E below 16 times or below 1,475 points.
Chaiyaporn Nompitakcharoen
Head of tactical research
Bualuang Securities
The SET gained 2.53 per cent over last week to close at 1,527.32 points ahead of the long Songkran holiday. Market movement looks stabilised as we predicted. The key concern is that the central bank will decide to tighten up regulations for the residential sector. A presales record in the residential sector is the main issue.
However, the central refutes the rumour that it would slap stricter regulations on mortgage loans, while concern over the conflict on the Korean Peninsula should decline after the Chinese president issued a strong statement that was unsupportive of North Korea’s actions.
Our risk measure tool indicates that market risk should decline week by week, which should boost confidence. We suspect that the SET Index has already bottomed out and will likely run up to test the resistance level of 1,560 points soon.
Our stock picks are SAMART, KAMART, PS, CK, WORK and LH.
