Weak sentiment likely to resist set revival

Even though the series of negative factors pressuring the SET Index - including political tension, inflationary pressure and baht depreciation - are not over yet, we view these factors as already priced in. This could be seen from the SET Index plunging to the year's trough at 737.83 points on March 20, representing 11.3 times price-to-earnings (P/E) at current trade and 9.82 times prospective P/E at the end of 2008. This level is regarded as very low and that's why there was a buying spree leading to the recent strong recovery in the market.

Cheap valuation is the SET's outstanding point and we estimate that the current market prices of Thai shares are far below fundamentals. But sentiment has become the stumbling block for the SET's further advance.

The SET Index this week will move narrowly, with a strong resistance level at 780 points and support level at 750, representing prospective P/E at 10 times. We think it is the level at which long-term investors should accumulate stocks. We believe that long-term investors can pile up stocks at the current level, given the low P/E and high dividend yield.

Our recommended stocks for long-term investors are as follows:

lThai Tap Water Supply (fair value at Bt5.74). It is a stock that can weather inflation as it can raise its water rates based on the inflation rate.

lPTT Exploration and Production (fair value at Bt259.36). Almost all research houses raised the stock's fair value, as the run-up in oil price can boost its share price.

lCP All (fair value at Bt14.04). It is expected to gain from the upward interest rate trend as it has the highest net cash among listed companies.

lTata Steel (Thailand) (fair value at Bt4). It is expected to be the biggest gainer in its industry as it has its own furnace and its second-quarter earnings will be robust.

Kim Eng Securities (Thailand)

Given the record high oil price, the steep decline in the world's stock market and the prevailing political tension, we recommend investors to sell their stocks. Investors should start accumulating stocks again when the SET Index hovers around 750 points.

We recommend investors to raise their cash ratio from 70 per cent to 80 per cent. Investors should allocate 10 per cent in big-cap stocks including PTT, Bangkok Bank, Kasikornbank , Siam Commercial Bank, Advanced Info Service and Banpu. Another 10 per cent should go to SET-sensitive stocks such as Bank of Ayudhya, Thanachart Capital, Thoresen Thai Agencies, BEC World, Land and Houses, Quality Houses and Asian Property. Six per cent should be in stocks with issues, such as Airports of Thailand, Thai Tap Water Supply, Hana Microelectronic and Thai Vegetable Oil. And 4 per cent should be in small-cap stocks such as Unique Mining Service and Bangkok Chain Hospital.

Sukit Udomsirikul

Assistant Managing Director, Siam City Securities

The stock market might rebound shortly after having been dampened by a spate of negative news over the past four to five weeks. The positive factor for this week is buying pressure to speculate on the expected solid second-quarter earnings of banks, steel firms, agricultural companies and developers, while the risk this month is inflation - with consensus expectations at 8.5 per cent.

Factors to be watched this week:

lThe announcement of June inflation. The surging inflation rate is an important factor driving the foreign investor selling spree.

lPolitics, particularly the movements of the People's Alliance for Democracy.

lUS dollar depreciation. The US Federal Reserve signalled it would not be in a hurry to jack up its key interest rate in July's meeting. This will prompt speculative buying in commodities, especially crude oil and gold.

lSecond-quarter earnings.

lWe recommend investors take profits, for those who have shares in their portfolio, or speculative buys for those who hold cash now. Banks, steel, coal and soybean manufacturing stocks are our top picks.