SET likely to retest the 384 low in H1' 09

"We looked back at trough valuations during the Asian financial crisis and following the dot.com bust," the brokerage said.

"During the Asian financial crisis the trough PER [pricetoearnings ratio] was 3.74 times and the trough PBV [pricetobook value ratio] was 0.58 times. Based upon our latest estimates for 2009, this would equate to levels for the SET index of 236 and 266, respectively. The average level is 251 and is in line with the worstcase scenario currently being painted by some technical commentators," the brokerage said in the Thailand Strategy report on Beau Thai XLIV.

The securities house expects the retest will be seen sometime in the second quarter of 2009. If the 384point nadir can hold, the SET can rally to 650 points.

"Even if equity valuations do revert back to 1998 levels under a worsecase scenario, we do not believe they will be able to stay there for long. It would likely represent a historic and brief opportunity," the report said.

Thailand's status is significantly more stable than during the Asian financial crisis and the country has not been the victim of overleveraging, it said.

The stock market has so far this year has lost almost half its value while marking the second-largest decline in 20 years. Previous sharp declines were 63 per cent between February 3 and September 4 of 1998 and 49 per cent from January 20 to October 11 of 2000.

Over the three months following these corrections, equities rose by 63 per cent and 22 per cent, respectively.

"We expect the SET to finally bottom by June 2009 and then start to rise very sharply indeed after September 2009," Phatra said.

The anticipation is based on past experience, which provides clues that the earningsdowngrade cycle endures for two years.

Since the Asian financial crisis, Thailand has experienced two periods of sustained earnings downgrades - 2000-2002 and 2005-2007 - and they lasted for two years on average.

However, in each case, equities bottomed out 1011 months after the first month of net earnings downgrades. This was a full year before net earnings revisions turned positive.

"If we count backwards by nine months from the first month when we witnessed net earnings upgrades in 2002 and 2007, equities rallied by about 70 per cent on both occasions during this period," the brokerage said.

It forecast that the SET Index would stabilise over the rest of this year and even rally slightly from the current level.

If the SET were to repeat the experience of 2000 and advance some 20 per cent from its lows over a threemonth period, that would equate to a SET Index of at least 480 by the end of January. It could be slightly higher than this. "A number above 500 on the SET appears very possible indeed," it said.

The market should stabilise this quarter, as foreign investors will start to reinvest while local investors will rush to invest through longterm equity funds and retirement mutu¬al funds for their tax benefits, Phatra Securities added.