Thai stock marketbrighter outlook as tensions ease

The question is whether the robust cycle for commodities has ended. The global economic outlook is getting worse while investors may hope to see monetary policy ease, not tighten, if commodity prices soften much more.

Oil and gold are in a correction phase and the market is waiting for approval from major central banks. If they signal clearly for eased liquidity, I believe commodity prices will resume their rally.

The US dollar has adjusted itself to a fair value, but an increase is not justified due to a weak US economic outlook. I believe the Thai market may move in a sideways direction with sector rotation this week. Selective stocks are Bumrungrad Hospital, CalComp Electronics (Thailand), Thoresen Thai Agencies and Charoen Pokphand Foods.

Tisco Securities

An easing of political tensions has brightened the outlook for the SET.

Hopes of a resolution to Thailand's longrunning political conflict have increased after former prime minis¬ter Thaksin Shinawatra skipped bail and opted for exile in England. Other factors that helped send the SET index to fourweek highs were betterthanexpected secondquarter results, particularly in the energy and property sectors; the recovery in glob¬al equity markets; and tentative buy¬ing of Thai stocks by foreign funds.

Meanwhile the sharp drop in crude oil prices has raised investor expec¬tations of a weaken¬ing of inflationary pressures in the sec¬ond half. Lower oil prices could lead to a pause in the Bank of Thailand's mon¬etary tightening cycle as well as improve the country's current account balance, thereby reducing downward pressure on the baht.

The easing of political tensions has made us more confident on the mar¬ket's nearterm prospects and we believe the SET index could rebound to the 780 level in this quarter. However, the market is likely to face a bumpy ride given continuing street protests against the Samak adminis¬tration and further evidence of a slow¬down in the world's largest economies.

As the current core inflation rate of 3.7 per cent exceeds the Bank of Thailand's target of 3.5 per cent, we expect the BOT to raise its policy rate on August 27 by 25 basis points to 3.75 per cent. However, this should be the central bank's last rate increase for 2008, which could trigger a rally in interestsensitive stocks such as banking and property. Also, com¬modities stocks are oversold and this should prompt bargain hunting in the heavyweight energy sector.

Vajiralux Sanglerdsillapachai

Executive director, Trinity Securities

We still believe the SET could reach 740760 points in August or September after bottoming out in July at 660 points. Easing concerns over the political situation have improved market sentiment. The index range next week is expected to be between 696 and 730 points, looking at an upside gain with low downside risk.

Political and government faces may be changing but we expect this will be good for the market. We rec¬ommend the strongest companies with sustainable earnings such as PTT, PTT Exploration and Production, Banpu, Bangkok Bank and Advanced Info Service. For wildcard stocks we recommend Thai Union Frozen Products, Indorama Polymers and Thai Plastic and Chemicals due to the baht deprecia¬tion and gains back from the bottom.

Should the oil price stay at the present level, August inflation may be 8.8 per cent versus 9.2 per cent in July, meaning that inflation may have already peaked. However, core infla¬tion is expected to remain high at 3.7 per cent, beating the highend of the BOT's core inflation range of less than 3.5 per cent. Thus, we still expect the Monetary Policy Committee to decide to raise the policy rate (RP1 day) by another 0.25 per cent, from 3.50 per cent to 3.75 per cent in the next meet¬ing on August 27. However, it is pos¬sible that this interestrate increase may be the last.