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Published on April 14, 2008

The Bank of Thailand held its policy rate at 3.25 per cent, in line with expectations for last week's meeting, but the market held itself above last week's low.

The question is whether the street is overly optimistic about the earnings outlook for banks and residential developers, as their stocks are closing in on five-year highs in price-to-book value and price-to-earnings ratio.

This week large US investment banks will report their first-quarter earnings. If there are no more loan-loss provisions, the equity market should react positively. Risk appetite for equities may gradually improve. The market attitude towards the oil sector may be somewhat reversed.

Even though the Election Commission on Friday resolved to disband the Chart Thai and Matchima Thipataya parties, it would not adversely impact the stock market as the case's final resolution depends on the Constitution Court. However, domestic-play stocks including property, consumption and banking would be hurt.

I then recommend energy stocks this

week - PTT Exploration and Production, Banpu, Thai Plastic and Chemical - as well as CP ALL and Amata Corp. The SET Index's support and resistance this week are at 820 and 830 points.

Tisco Securities

The SET Index has consolidated in a narrow range of 800-835 points over the last six weeks due to domestic political uncertainty, the global economic slowdown and the long holidays this month.

However, we expect the index to climb out of its rut and challenge the 850-860-point resistance level early next month due to strong first-quarter earnings of banks and a further cut in US interest rates.

We believe the US Federal Reserve will lower its federal funds rate by 50 basis points to 1.75 per cent at its April 30 meeting.

Before then, the market should get a fillip from the disclosure of bank results.

We estimate the pre-provisioning profit for the seven banks under our coverage will rise by 13 per cent quarter-on-quarter and 23 per cent year-on-year.

This is due to stronger loan growth, wider NIMs from lower funding costs and higher loan yields, and lower non-interest expenses.

With US oil prices last week hitting a new record high of US$112 per barrel, we also recommend short-term investors to increase exposure to blue-chip energy stocks.

One key risk to our more upbeat view of the stock market's prospects is political developments.

The Election Commission's recommen-dation to the Constitution Court that the Chart Thai and Matchima Thipataya parties be dissolved is likely to dampen investor

confidence.

Vajiralux Sanglerdsillapa-chai, executive research director at Trinity Securities

The rise in the consumer confidence index and the high utilisation rate show that the economy has kept improving. We believe that gross domestic product (GDP) growth would be the main driver for the SET Index.

The Bank of Thailand forecasts GDP growth in 2008 at 5.5 per cent, but we are more optimistic. We estimate that GDP growth might reach 6 per cent as the current low interest-rate environment would stimulate consumption and investment.

The Fed's possible further interest-rate cut late this month would be a force driving funds to emerging markets like Thailand.

We believe that the SET's rally will be seen until next month with the target at 860-880 points, even though politics poses a threat to investment. We recommend "buy" for Bangkok Bank, PTT Exploration and Production and Tata Steel (Thailand) this week.

Medium term, we believe that the oil price has about peaked and the forecast of a weakening oil price in the second half this year would ease inflationary pressures and bode well for the production and transportation sectors.

The stable interest rate environment and the improved economy would drive new investment projects, while the government's investment in mega infrastructure would boost the SET Index in the second half. We have targeted the SET Index at 940-984 points in August and September.