Political situation holds key to market sentiment

We expect strong fluctuations in the SET index this week, pressured by the political situation as the People's Alliance for Democracy (PAD) plans big rallies. Foreign investors turned into net sellers of Thai shares with a net position of Bt7 billion last week due mainly to the tension in politics. If the PAD's rallies continue, they will have a psychological impact on long-term investors and the economy, causing the Thai stock market to underperform other regional stock markets.

Blue-chip stocks are now attractive following a 6-per-cent drop within one week by the Thai stock market. The SET index will recover this week failing further PAD action.

Anxiety over the US economic slowdown has eased since the US GDP rose 0.9 per cent quarter on quarter, higher than economists' forecast.

Factors to keep an eye on this week are that Thailand's inflation in May is expected to surge to 6-6.5 per cent year on year, compared with 6.2 per cent in April, as oil prices hit record highs with food prices remaining quite stable; the US will announce unemployment and non-farm payroll employment data this week.

We recommend investors accumulate undervalued blue-chip stocks, including Kasikornbank, Banpu, Advanced Info Service, Lanna Resources and dividend stocks offering more than 6-per-cent yields such as Thai Metal Trade, MCS Steel and Modernform Group. For speculative purposes we recommend export-oriented stocks such as Delta Electronics and Cal-Comp Electronics (Thailand).

Kim Eng Securities (Thailand)

Kim Eng Securities (Thailand) recommends investors delay their investments in the stock market and monitor the political situation closely.

The securities firm suggested investors keep at least 70 per cent cash in hand due mainly to the higher risk.

Kim Eng recommended big-capitalisation stocks, including PTT, Bangkok Bank and Kasikornbank, while it recommended "buy" for Thoresen Thai Agencies, Bank of Ayudhya, Banpu, Thanachart Capital and Asia Plus Securities as stock sensitive to the SET index. Factors that may affect the stock market are global oil prices falling 3.4 per cent to US$126.62 (Bt4,110) per barrel on Friday due mainly to lower demand in the second quarter in the US. This will put pressure on the energy sector over and above the government's intervention on refinery margins. The baht also moved to Bt32.50 per dollar on Friday due mainly to the stronger dollar.

Therdsak Thaveeteeratham

Senior vice president, Asia Plus Securities

The resignation of PM's Office Minister Jakrapob Penkhair and the withdrawal of a motion to amend the Constitution have eased the political tension. We believe that four oil refiners will feel a lower-than-expected impact from cutting ex-factory diesel prices by Bt3 a litre on 122 million litres per month for six months, and that is why investors rushed to snap up refinery stocks.

Both events propelled the stock market's recovery last Friday, and the euphoria in the market is expected to continue this week. Asia Plus Securities has revised upwards listed companies' 2008 earnings estimates by 4.98 per cent to Bt568 billion since the first-quarter earnings were released. The SET index is likely to test 860 points this week.

The broker forecast that listed property developers' operating profits in this quarter would jump 50 per cent year on year based on their aggregate backlog of over Bt90 billion at the end of the first quarter. Land and Houses, with a fair value of Bt10.85, Preuksa Real Estate, with a fair value of Bt14.12, and Major Development, with fair value of Bt6.3,7 are the outstanding stocks here.

Thai Oil, with a fair value of Bt81.50, and Bangchak Petroleum, with a fair value of Bt16.04, are the outstanding stocks among listed oil-refiners.