Thai shares are poised for a strong rally

Chaiyaporn Nompitakcharoen

Head of Research, Bualuang Securities

The market failed to break through the trading ceiling of 850 given the strong rise of crude oil WTI over US$115 a barrel and concern over incoming inflationary pressure. Investors took profit on banks and property developers, as was expected given a stretch valuation.

The composite SET index fell 1.56 per cent to 832.19 at the end of last week from 845.40 at the end of the previous week. Foreign and local institutional investors were sellers with net positions of Bt1.2 billion and Bt1.31 billion.

The trade-weighted US dollar index has recovered 2.16 per cent over three days. It showed that the greenback has strengthened against major currencies. I believe that the rebound should be temporary given persistent credit tightening in the US. The baht should weaken against the dollar in the short-term resulting in higher fuel costs. Concerns over a strong US dollar rally will temporarily curb the climb in crude-oil prices. The electronics sector is suggested for the US dollar recovery theme.

Tisco Securities

Five economic factors now in place should bolster the equities market - an upturn in the business cycle, a fall in real interest rates, increase in productivity, pro-business measures adopted by the new government and a rise in the budget deficit. With an end to the cycle of US interest rate cuts expected soon, we believe Thai stocks are poised for a strong rally.

The market is expecting the Fed Funds rate to bottom out this quarter at 1.75 per cent. If historical patterns are repeated, this may be the cue for a rally in global equity markets as fund flows shift from fixed income to other asset classes. Also, Thai stocks have not fully reflected the growth outlook for 2008. The SET is trading on a cheap PER of 11.5 times despite our expectation of 21-per-cent EPS growth this year. We remain bullish on domestic plays - banking, property and telecommunications. The energy sector also offers good value due to the inexorable rise in global oil prices and its cheap valuations. We also see bright near-term prospects for brokerages on the back of the recent jump in trading volumes and the upcoming IPOs of Esso and Thai Tap Water.

Two caveats could overturn our bullish stance - unexpected political developments and a worsening global liquidity crisis.

Vajiralux Sanglerdsillapachai

Executive director, Trinity Securities Research Department

This week will see three key events. At the FMOC meeting, we expect the Fed to further cut its target rate by 25 basis points to 2 per cent. Many companies will report earnings results - such as Sahaviriya Steel Industries, Siam Cement, Siam City Cement, Thai Plastic Chemicals, Dynasty Ceramic, Total Access Communication - which would help the market to be more active. We expect the oil price to decline next week, which would help ease inflation concern.