Global risks causing outflows

The SET Index fell sharply below 700 after it breached neckline support at 728. The market turned blue. Foreign investors continue to have liquidity exposure in Thailand despite low valuations in all fundamental criteria for stocks in general.

Investors should not be confused by analysts' "buy" recommendations which have not worked well in the current environment, nor should they blame the Monetary Policy Committee for a tightening policy bias.

Capital outflows from Asia as

well as emerging equity markets come from increasing risks in the global economy, which is a global issue.

What should we do at the moment? Your equity portfolio should be smaller than usual. This bear cycle will likely last longer than we experienced five years ago.

I believe fixed income will perform better than the equity market over the next month.

Tisco Securities

A sooner-than-anticipated correction in the global oil market is a key factor behind the SET's continuing dismal performance. The Thai market fell by 8.7 per cent during the period July 2-15 and has plumbed new depths since.

With energy and utilities stocks currently accounting for 34.7 per cent of total market capitalisation and just over 39 per cent of average daily turnover, the drop in oil prices is having a considerable negative impact. Benchmark oil prices slipped below US$130 (Bt4,330) per barrel recently in expectation of sluggish US demand and we anticipate a period of softening oil prices through July and into August.

The Thai market is therefore expected to drift lower in the near term on continued selling. In our view the market could bottom out at around the 635-650 point level before staging a minor rebound. This is likely to be led by the property sector, which is under-owned at this point as the foreign holding in the sector is at around a 30-month low.

We see the market recovering to around the 700-point level before negative domestic factors again come to the forefront. The coalition government is in considerable disarray. Pressure on the coalition has intensified and a major Cabinet reshuffle is on the cards in the near future. Nonetheless, the embattled People Power Party-led government has said it intends to press ahead with amendment of the constitution and we see this as capping the SET's ability to recover from the present lows.

Vajiralux Sanglerdsillapachai

Executive Director, Trinity Securities

The SET Index has collapsed substantially over the past several months, dipping 220 points or 25 per cent from its peak in May. Last week alone the SET slumped 66 points to 664.52.

Foreign net sales were as high as Bt78.4 billion year to date in order to return money to the United States in the credit crisis. We do not see the end to foreign sales in the near future and, even though the current valuation is now quite compelling, we still see a further downside risk for the SET.

Any share price rebound would indicate an opportunity to reduce the portfolio. For a buy-and-hold strategy, we still recommend investors wait for improved market sentiment. We recommend "selective buy" for some defensive stocks with sustainable earnings such as Electricity Generating, Bangkok Expressway, Thai Tap Water Supply, Major Cineplex Group, BigC Supercentre and Bangkok Dusit Medical Services, as well as dividend stocks such as Advanced Info Service, Thai Plastic and Chemicals, Thai Vegetable Oil, Asian Insulator and Thai Union Frozen Products.

Last Wednesday, the Monetary Policy Committee decided to raise the reference rate by 25 basis points to 3.5 per cent to combat inflation. This was in line with market expectations. We expect a further 50-basis-point rise later in the year - at the August and October meetings - bringing the reference rate to 4 per cent by year-end.

However, we do not expect inflation to ease immediately, as monetary policy needs time to take effect. We actually expect inflation to continue rising to double-digit rates this month and it should peak in August. We believe the recent government package to control inflation will be too small to reduce inflation.

We believe that the rising interest rates will not be positive for the economy overall, as they will further increase costs for consumers and companies - ultimately hurting economic growth. For this year, we expect recovery of domestic demand may be losing steam, and the economy is likely to remain stagnant. Therefore, we still recommend investors wait for improving market sentiment.

For the energy sector, we expect oil prices to continue declining after a sharp drop last week. This would be negative to oil-related stocks such as PTT, PTT Exploration and Production, and Banpu.

Although a declining oil price would ease inflationary problems and assist the overall economy, as PTT and PTTEP have the highest market cap, a declining share price would depress the SET Index.