Market View

Foreign investors bought more than Bt80 billion net of Thai shares during this period. Money flows into emerging markets have been a major driver for stock gains as well as pushing bond yields down as global investors seek higher returns and allocate some of their funds into riskier assets. 

Besides yesterday’s charter referendum, which will lead to a general election sooner or later depending on the final outcome, we do not expect any significant impact on Thailand’s fundamental outlook. 

So far, the phenomenon of weak exports basically reflects the weak global demand, which is affecting most countries. 

Regional governments are adopting quite similar policies to Thailand, that is, attempting to stimulate domestic demand and investments. Thanks to the fiscal discipline and decisiveness of the current administration, Thailand is able to forge ahead quickly with massive infrastructure investments, which will be a key growth driver in the coming years. Our 12-month SET Index target is 1,570 points, based on 15 times 2017 PE (price-to-earnings ratio). We expect the market’s year-on-year earnings growth to come in at 31.4 per cent this year and 9.4 per cent in 2017. 

Our top three stock picks are CPF (Charoen Pokphand Foods), CK (Ch Karnchang) and JASIF (Jasmine Broadband Internet Infrastructure Fund). 

In terms of portfolio allocation, we recommend that investors diversify into overseas markets. REIT (real-estate investment trusts) is one of our favourite asset classes in view of the fact that many REITs are offering distribution yields of 5-9 per cent. We expect global investors to continue trimming their low-yield fixed income assets and move into better-yielding REITs. Thai investors can invest in overseas REITs via offshore trading accounts with selected Thai brokers.

 

Tisco Securities

We expect the Stock Exchange of Thailand to extend its rally in the near term thanks to continued foreign fund inflows and a recovery in consumer confidence. However, we see the risk of market correction towards our 1,490-point target before year-end because of sluggish earnings in the second quarter of 2016, weakening oil prices and external macro uncertainty.

If the results of yesterday’s constitution referendum were “Yes”, that will be positive for market sentiment, as it will mark a clear step towards the return of democracy in Thailand. A “No” vote would almost certainly cause the market to retract, as this would increase political uncertainty and raise concerns about fresh delays in the election timetable. 

Another key date for investors is August 15, when second-quarter GDP data are due to be released. Tisco’s Economic Strategy Unit forecasts growth of 3.2 per cent year on year, the same as 1Q16. In terms of 2Q16 performance, we expect the biggest rebounds to come from food, tourism and property companies. 

Projected underperformers include ICT (minus 26 per cent year on year earnings forecast), energy (minus 16 per cent year on year), and petrochem (minus 42 per cent year on year). We expect banks – notably KBANK (Kasikornbank) and SCB (Siam Commercial Bank) – and high-yield stocks – ADVANC (Advanced Info Service) and INTUCH (InTouch Holdings) – to rally further thanks to positive sentiment and upcoming foreign fund inflows. 

Note that the bank sector reported aggregate 2Q16 earnings of Bt48.3 billion (minus 3 per cent year on year but up 6 per cent quarter on quarter), in line with our and market expectations.

We maintain our overweight stance on contractors such as CK (Ch Karnchang) and UNIQ (Unique Engineering and Construction) based on upcoming bidding for infrastructure mega-projects. We also like SCC (Siam Cement) despite it recently cutting its 2016 cement-demand forecast from 3-5 per cent to 1 per cent. In our view, SCC’s petrochemical earnings will remain strong in the near term and the ramp-up in public infrastructure spending will eventually boost private cement demand.

 

Research Department

Trinity Securities

We expect no significant impact on foreign capital movement after yesterday’s constitutional referendum. That will have only a short-term psychological impact on local investors.

This week, movements could follow external factors rather than the domestic political situation. In the short term, external factors that need close monitoring include the August 17 statement after the US Federal Open Market Committee meeting and movements of crude-oil prices, which are expected to have direct effects on the US Treasury yield and foreign capital movement. 

The decision by the Bank of Thailand’s Monetary Policy Committee last week to maintain its policy rate at 1.50 per cent could be positive for capital movement after differentials between interest rates of Thailand and those of developed countries become attractive, compared with other regional peers that have seen rate cuts. And we continue to see a strong trend for capital movement in Thai capital markets.

In the short term, the SET Index is forecast to move sideways in a range of 1,470-1,550 points. Sell on rises and buy on falls in such range. Focus on investment in industries with laggard prices – property, transportation and auto parts. Stock picks: AP, ANAN (Ananda Development), BA (Bangkok Airways), SAT (Somboon Advance Technology).

For the rest of this year, the third quarter will see more improvement in its investment environment than that in the fourth quarter, given risks that could arise late in the year. Such risks extend from the US presidential election and a possibility of the US Federal Reserve raising its interest rate in December. This could be a start for the US dollar beginning to appreciate and capital moving out of emerging stock markets again.