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Brokers suggest focusing on stocks that missed the strong rebound recently

Vajiralux Sanglerdsillapachai,

Executive Director, Trinity Securities

The Stock Exchange of Thailand (SET) Index slumped sharply last week from its peak of 638.05 on June 12, to 566.50 on Thursday, before rebounding strongly on the last trading day to close a brutal week at 588.98. This week, we believe the index is likely to continue its rebound to 610, driven by the energy sector. Meanwhile, the banking and property sectors are the main beneficiaries of the recently passed royal decree and act approving a Bt800billion loan package to jumpstart the economy. Over the next two months, we believe the SET Index will perform in a range of 555 to 650.

Last week, the Commerce Ministry reported May trade balance data. Exports continued their decline, falling 26.6 per cent yearonyear, but up 11.8 per cent monthonmonth to US$11.7 billion (Bt399.14 billion) due to seasonal factors. However, we believe that export data was quite a disappointment, seen in the light of the market's expectation of a strong recovery in export value. Nevertheless, imports continued to decline, contracting a sharp 34.7 per cent to $9.3 billion, resulting in a high trade surplus of $2.4 billion. We still do not expect a recovery in exports in the near future, and our forecast of a contraction of minus 14.5 per cent in exports this year would be on downside risk.

The US Federal Reserve's Federal Open Market Committee (FOMC) will meet on June 23 and 24. We expect it to keep the Fed Fund rate unchanged at 0 per cent to 0.25 per cent. However, the key focus will be on the FOMC's statement on the US economic outlook.

Our stock picks for this week are PTT, IRPC, Charoen Pokphand Foods and Siam City Bank.

Tisco Securities

News of the weakening macro picture overseas and the further spread of H1N1 flu in Bangkok sent the SET down 10 per cent last week from its peak. However, liquidity conditions remain extremely supportive, with foreign investors being net buyers of Bt10 billion of Thai equities in the first three weeks of June. We may see another spike in the SET Index, but such high volatility amid weak economic conditions makes the remaining surge look rather shaky.

Bigcap stocks in the banking and energy sectors look increasingly vulnerable to a pullback, given their stretched valuations. Property stocks could also face profittaking as rising bond yields and crude oil prices above US$70 a barrel heighten worries about longterm borrowing costs. Meanwhile, the rise in the number of confirmed cases of typeA H1N1 flu in Thailand to 150 as of June 15 is likely to dampen sentiment towards tourism and consumer players.

Stocks still worth buying are those that have either lagged the rally or are considerably undervalued. These include telecom operators, utilities, commerce, agri and food businesses, and media. As a bonus, all these stocks offer decent dividend yields of between 4 per cent and 8 per cent over the next two years.

Chaiyaporn Nompitakcharoen,

Head of research, Bualuang Securities

The SET bounced back last Friday after a fourday selloff. The market is growing increasingly volatile, implying heavy speculation in the market at the moment. Frankly speaking, the equity index could be capped at the 600620 level by speculator sales for this week. The earningyield gap, a tool I focus on, is reversing, near the zero line. Historical data indicates that the market is stretched.

Investment at current levels must be done carefully, as any surprise negative news could have a meaningful impact on share prices. Incoming quarterly results may prolong index correction if the outcomes are better than the market expects, and this may prompt analysts to feel more comfortable with current share prices.

Earnings upgrades may flow into the market afterward. If there are no surprises, the market could see a sharp correction again.

Personally, I suggest a waitandsee approach. When a market becomes a "rock", it always takes money out of your pocket, rather than giving you a return. I look for a laggard like hotels for a recovery theme in the second half. Stock picks: Minor International, Central Plaza Hotel and Erawan.