Brokers rein in optimism amid soaring oil prices and inflationary pressures

The market gained slightly last week to close at 875.59 points on heavy daily turnover of more than Bt20 billion. Most investors kept

an eye on the West Texas Intermediate (WTI) crude oil price movement, which posted a record high in New York. By some calls the WTI price will rise to a level of around US$150 (Bt4,800) or more in the second half of

this year against a global brokerage consensus prediction of average crude oil prices of $120 this year.

However, in the short term I would not be surprised if the

WTI crude oil price had a correction after an upward rally of almost 40 per cent since early January.

I do not suggest investors chase oil-related stocks but stay patient for the share price to pull back.

I still worry about oncoming inflation, given that many manufacturers will ask the government for selling-price adjustments. Stock picks for this week are Bumrungrad Hospital, Minor International and BigC Superstore.

Tisco Securities

Inflation risks are likely to cap the SET rally.

We have become more cautious on the near-term market outlook following the strong rally in the SET index over the last two weeks. The upsurge in crude oil prices to over $130 per barrel is fuelling inflationary pressures that could lead to a slowdown in domestic demand and weaker economic growth.

Even though we are maintaining our SET index target of 920 points for this quarter, we expect greater market volatility over the next two weeks. A key date to watch is June 2, when the Commerce Ministry releases inflation data for May. Although the economy is seeing a recovery in consumption and investment - which is more positive than our current assumptions - there is downside risk to our earnings estimates from the negative impact of rising inflation. Government measures could however help alleviate the effects of inflation, and we expect a limited downside to our current earnings targets.

The market should also get support from better-than-expected earnings in the first quarter. Aggregate net profit for listed Thai companies surged by 34.4 per cent year-on-year in the period. Of the 451 companies to report so far, 64 per cent announced year-on-year profit growth in the first quarter. Of the companies under Tisco coverage, 52 per cent posted higher-than-expected profits while 24 per cent came in below our targets. Total profits booked in the first quarter exceeded our forecast by 9.6 per cent, while non-financial firms' profits were 10.6 per cent higher than we estimated.

Vajiralux Sanglerdsillapachai

Executive director, Trinity Securities

Stable-earnings stocks are preferable.

The oil price continued hitting highs to stand above $130 a barrel. We believe oil is now too expensive and will hurt the real-sector economy. Should oil prices remain at this high level, we believe the second-quarter earnings for the real sector will be poor. We expect the oil price to decline in the near future, which would ease inflation concerns. Therefore, we recommend stocks with stable earnings and immunity from high oil prices. The best choice is Advanced Info Service, with a laggard play to Total Access Communication.

In the banking sector, loan growth in April continued to perform very well. Bangkok Bank, Siam Commercial Bank and Kasikornbank led in strong loan expansion. We expect the strong momentum to continue and remain bullish on the banking sector.

We recommend a pair trading strategy - short Siam Commercial Bank and long Kasikornbank. We believe the valuation gap will eventually converge. Top picks in the banking sector are Bangkok Bank, Kasikornbank and Siam City Bank.

The Monetary Policy Committee has decided to maintain the reference rate (RP-1 day) at 3.25 per cent. We believe interest rates are now on a rising trend. We expect interest rates to increase late this year or early next year. This would be negative for the property sector.

Our weekly stock picks are Advanced Info Service, Kasikornbank and Loxley.