Experts expect near-term rebound

After the Commerce Ministry announced May headline inflation of 7.6 per cent, funds flowed out of the Stock Exchange of Thailand and the baht weakened. We believe the SET declined after the announcement of a trade and current-account deficit of US$1.8 billion (Bt59.6 billion). On June 12-13, China and the United States, respectively, will announce their inflation rates.

We believe it might be another unimpressive period. The big picture for SET is still in danger, but some rebound is expected for a while to 820-830. We foresee the support level at 795-805 points.

The oil price hike is the main factor hampering economic growth and companies' earnings in the second quarter. We believe second-quarter earnings for the real sector will be poor. We expect the crude oil price (West Texas) to continue between $114 and $137 per barrel for the rest of the year.

With high inflation, the Bank of Thailand implied an upward trend for interest rates, while commercial banks responded by announcing an increase in deposit and loan interest rates. This made the interest-rate spread rise to 4.5-5 per cent from the existing spread of 4.25 per cent. This should be slightly good news for this week. We expect interest rates to increase late this year or early next. This would be negative for the property sector but positive for the banking sector.

We might revise upward the fair value of Banpu from Bt512 per share due to its increasing stake in Asian American Coal mining assets in China. We believe that oil prices will stay high and continue to benefit PTT Exploration and Production (PTTEP), while the Baltic dry index will benefit Thoresen Thai Agencies. Loxley is a turnaround stock for this month from the online lottery business.

Our top buys are Banpu, PTTEP, Thoresen Thai and Loxley.

tisco securities

We expect the SET Index to rebound by at least 20 points in the near term to the 830 level after falling more than 8 per cent from its recent high of 884 points. Between May 26 and June 5, foreign investors were net sellers of Bt25.8 billion of Thai stocks due to renewed political risks. Tensions ratcheted upward after the People's Alliance for Democracy (PAD) changed its target from opposing Constitution amendments to ousting Prime Minister Samak Sundaravej and his Cabinet from office.

Sentiment has also been damaged by rising inflation, a weakening baht and Bangkok Bank's decision to hike deposit and lending rates, prompting other major banks to follow suit. Headline inflation jumped to a near 10-year high of 7.6 per cent year on year in May, lifting the chances of the Bank of Thailand raising its policy rate at its July 16 meeting.

On the political front, however, we see some signs of progress and this could become a catalyst for a turnaround in the market's mood. The government has backed down on its plans to amend the Constitution and appears to be more willing to work with the opposition Democrat Party to resolve perceived flaws in the Army-drafted 2007 version. Also, there seems to be little sympathy among Bangkok's middle class for the PAD's new aim to topple the government, with latest press reports indicating that attendance at its daily rallies is falling.

We believe the market's recent slide provides a good buying opportunity for long-term investors, particularly in stocks that offer protection from high inflation such as mobile-phone operators, hospitals, hotels and utilities. We also recommend investors to focus on oversold stocks with strong fundamentals, particularly those in the banking and property sectors.

chaiyaporn nompitakcharoen

Head of Research, Bualuang Securities

The market is expected to rebound this week after a heavy sell-off by foreign investors. I've found that many people have blamed the political situation as a reason behind the market's fall. However, underestimates of skyrocketing crude oil and food prices have also created market risk and volatility. The bank and property sectors have fumbled, overturning extremely optimistic perceptions. Gross domestic product in the second half will likely increase by a slower rate than in the first half.

Interest rates will probably rise 75 basis points by year-end in order to achieve economic stability. Fear of non-performing loans in the banking system will push banks' shares into the discount zone. Do not be in a hurry to hunt for bank bargains. The bear market will not end soon.

Stay with defensive plays: Bumrungrad Hospital, CP All, Big C Supercentre, Central Plaza Hotel, and upstream companies like PTT Exploration and Production and Banpu.