Little movement expected this week

A selling spree by foreign investors was the main cause of the SET Index's steep decline in the first half of the month. The devaluation of Vietnam's dong, the US Fed's signal to start raising interest rates from the fourth quarter and the prevailing local political tension triggered the selling pressure.

Tracked back from 1993 to June 12 this year, foreign investors have remained net buyers of

Thai shares to the tune of an

accumulated Bt339 billion. Interestingly, they were net sellers for six years in that period (including this year), with the highest net sale being Bt36.36

billion in 1994. It can be seen that foreign investors' net sales of Bt32.99 billion in the stock

market so far this year are approaching the historic peak, which might be a sign that

their selling spree will be over soon.

However, it does not rule out the possibility of a new high for foreign investors' net sales, given that their net buys were relatively high from 2005 to 2007. We believe that if this were to be the case, the additional net sale amount would not be signifi-

cant.

Asia Plus Securities estimates that the SET Index at 780-790 points is suitable for investors to accumulate stocks, as the bourse's price-to-earnings ratio at the end of the year at this level would be very low.

The SET's downside is limited at 780 points, but a strong rebound is not easily seen due to a spate of negative factors, including politics, inflation and interest rates. The current resistance level is 800 points.

'Buy and hold' is the appropriate strategy in the current stock market conditions.

Investors should pick stocks with a strong financial position and/or a high dividend yield. These include CP All, BEC World, MCOT, Thai Stanley Electric, Thai Metal Trade, Supali and MCS Steel.

Kim Eng Securities (Thailand)

We expect a sideways index within a 780-800 range this week.

We believe the market is quite oversold at under 800, but foreign selling and external volatility remain key concerns. We prefer local plays given the recent weakness and relative security from any US risk.

We recommend investors to accumulate PTT, PTT Exploration and Production and Banpu, though these three stocks might face a near-term downside or volatility.

Kasikornbank, Siam Commercial Bank, Land & Houses, Advanced Info Service, BEC World and Central Patana are recommended for accumulation due to resilient operations against inflation and possible gains, if commodity prices retreat.

Cal-Comp Electronics and Hana Microelectronics are expected to further outperform the market, given that they would gain from the baht's depreciation.

Sukit Udomsirikul

Assistant managing director, Siam City Securities

Investment in the stock market this week carries the risk of the SET Index going down further. The risk factors are:

l High inflation due to the spike in global crude oil prices

l Further baht depreciation following the devaluation of Vietnam's dong

l The uncertain local political situation

l Interest-rate hikes by commercial banks, which would be another blow to domestic consumption, in addition to inflation, and might lead to gross-domestic-product growth in the remainder of the year falling below 6 per cent.

A short-term rebound in the stock market is likely to be seen in the next one to two weeks, Thai shares having slumped by about 10 per cent from the year's peak and foreign investors having sold out with a net position of Bt30 billion.

We expect the trade account in May to remain in deficit on the back of high oil prices and rising raw-material costs. The US Fed's meeting on June 24 and 25 and Vietnam's economic conditions are external factors that need to be monitored.

'Hold more cash' is the investment strategy for this week, in order to lower risk from the stock market's fluctuation.

Banks with efficient risk management, such as Bangkok Bank and Kasikornbank, are recommended buys. Property developers' stocks are rated 'reduce weighting' as their 2008 earnings forecasts are likely to be revised downward and some could face a liquidity crunch.