Market keeping eye on streets

What are the possible scenarios and their implications for the equity market?

1) The police seri¬ously crack down on pro¬testers but without harmful injuries. I believe the market would react a little bit positively given that the antigovernment forces would presum¬ably resume their activity later.

2) The government uses a "push and pull" strategy, and waits for more social support. In this scenario the mar¬ket tends to move sideways with thin vol¬ume. Investors may adopt a waitandsee strategy.

3) There is harmful injury. The market would likely panic and sell in the short term. But it could recover very pos¬itively, as investors might bet that the government would have to step down. The political rough road might reach its end.

I personally believe that the govern¬ment will maintain its pushandpull strategy. So I believe the market will like¬ly move sideways. However, high beta stocks may look interesting if the mar¬ket has panic selling. I believe that the political tension factor is largely priced into stock prices already.

 Stock picks are Preuksa Real Estate, Asian Property, ItalianThai Development and Kasikornbank.

Tisco Securities

Thailand's political temperature rose a few more degrees last week after thou¬sands of PAD demonstrators stormed Government House and key ministries as part of a "final push" to overthrow the Samak government. The SET Index ini¬tially retested its 2008 low of 660 points but rallied past the 680points level towards the end of the week amid hopes that the standoff would end peacefully.

 Encouraging such hopes was an apparent change of heart by PM Samak Sundaravej, who pledged not to use vio¬lence to drive out protesters. Also, secu¬rity forces seemed reluctant to confront the huge crowd despite the Criminal Court issuing arrest warrants for nine PAD leaders.

The longer the PAD's siege of Government House lasts, however, the more chance there is of delays and dis¬ruption to government measures aimed at alleviating the effects of high living costs and weaker domestic demand. A prolonged impasse would further under¬mine the prime minister's authority and increase the chances of a parliamentary dissolution and fresh elections in 2008. This raises the possibility of additional downside risk for consumerrelated stocks (including housing and autos), building materials, contractors and tourism.

However, we continue to recommend that investors stick with bigcap energy stocks given high oil and coal prices, ongoing expansion and strong upside potential to our target prices.

We also suggest using market weak¬ness to accumulate interestsensitive stocks in the banking and property sec¬tors.

Vajiralux Sanglerdsillapachai

Executive Director, Trinity Securities

Last week, the index dropped deeply to test 660 points again. The index range was between 660 and 687 points. Due to political uncertainty and the upcoming dividend effect during the week, we expect the market will remain volatile.

Big stocks like PTT, Thai Oil and PTT Chemical will pay interim dividends on September 2, 3 and 4 respectively. We maintain recommend selective buys including Thai Union Frozen Products, Banpu, PTT Exploration and Production, Khon Kaen Sugar Industry, Hana Microelectronics and Advanced Info Service.

The index range in the week is expect¬ed to be 666796 points.

Intense politics has come back after the People's Alliance for Democracy attacked and seized the government's NBT station and Government House. Although the situation seems prolonged, we believe that the government will has¬ten to make a decision before this prob¬lem worsens. Moreover, the court has issued warrants of arrest for nine PAD leaders - the group's backbone - and ordered the PAD to move out from Government House. We believe that the government has the responsibility to behave in accordance with the court decision. So we expect to see an outcome this week.

On September 1, the Commerce Ministry will report the inflation rate for August. We expect to see softer headline infla¬tion from 9.2 per cent last month to 8.8 per cent. However, core inflation will remain high at 3.7 per cent for this month. For the year, we expect an inflation rate at 7.5 per cent based on the assumption of a US$120 a barrel (Bt4,100) average oil price for the rest of the year, while core inflation is estimated at 2.8 per cent. Last week, the central bank's Monetary Policy Committee decided to raise the policy rate (RP1 day) by 0.25 basis points to 3.75 per cent in order to combat high inflation. We, nonconsensus, expect a further 0.25basispoints increase for the rest of this year.

Thai Union Frozen Products will gain from the US new antidumping rate for Thailand at 3.18 per cent on average, down from 6.05 per cent.

Top picks are Thai Union Frozen Products, Khon Kaen Sugar Industry, Banpu, PTT Exploration and Production, Hana Microelectronics and Advanced Info Service.