Merrill upgrades exchange

US-based Merrill Lynch has upgraded its recommendation on the Thai bourse from "underweight" to "overweight", while foreign investors have bought shares worth Bt18.78 billion over the past three days.

Foreign investors have turned their position to accumulated shares since last Thursday following a month-long sell-off, and their three-day buying spree pushed the Stock Exchange of Thailand (SET) Index up 6.3 per cent. However, they have sold shares with a net value of Bt2 billion so far this year.

The SET Index fluctuated sharply yesterday. It started the day with a sharp gain and surged to the day's high at 828.79 points. Early strong gains succumbed to profit-taking, and shares plunged to the day's trough of 809.64 points before retreating to close at 811.56 points, up 0.09 per cent. Turnover was brisk at Bt36.31 billion.

Merrill Lynch said in a paper that its upgrade of Thai stocks could be ascribed to its anticipation that private investment would more than offset any slowdown in electronics exports, the Bank of Thailand would likely cut its policy interest rate and earnings per share would grow nearly 20 per cent this year.

"Political risk has not dissipated. Dr Supavud Saicheua, an economist at our partner, Phatra Securities, says Bangkokians and the elite are in general not in favour of this government. Legal obstacles could be created, and the potential Cabinet looks weak, given that many qualified people are banned from serving," the broker said.

"Nevertheless, uncertainty has been reduced. The Cabinet line-up should be confirmed next week, and the new government should sit by the third week of February."

Although real gross domestic product is likely to slow, cost savings less

provision by the banks, regulatory changes in the communications sector and a new natural-gas pipeline in the energy sector will add to earnings growth, the broker said.

"We estimate earnings will grow 18.9 per cent in 2008. That will be the fastest clip since 2003 if realised," Merrill Lynch said.

Brokerage house CLSA is also upbeat about shares following the formation of the government.

The broker expects mega-projects to be revitalised, although their real construction could move at a slow pace.

Infrastructure projects, domestic consumption, a recovery in private investment and the upward cycle of coal prices will be the key themes driving the stock market this year, CLSA said.

Arparporn Sawaengpak, assistant manager for research at DBS Vickers Securities, said the steep rise in shares would continue as investors tracked the gains in regional stock markets and foreign investors went on a buying spree.

Prime Minister Samak Sundaravej's pledge to construct electric-train routes within three years also gave a big boost to the stock market.

"The overall market sentiment remains in good shape despite the profit-taking in afternoon trading. The SET Index will likely go up on the continuing fund flows. However, I cannot tell you how long the buying spree will continue," Arparporn said.

Siriporn Chanjindamanee

The Nation