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Continuing political stalemate unlikely to lift the mood at Thai bourse

The SET Index rose 4 per cent in the last two weeks to close at 1,308.34 on Thursday, on heavy buying in banks and big-cap stocks despite the political uncertainty. The SET outperformed its regional peers, as represented by the MSCI Asia ex-Japan Index, which was flat.

Foreign investors were net sellers at Bt4.7 billion. Retail investors were also net sellers with Bt1.8 billion, while local institutions and brokers' proprietary ports were net buyers of Bt4.8 billion and Bt1.7 billion.

On the domestic front, there is still no solution to the political deadlock. The caretaker government imposed a 60-day state of emergency in the capital and parts of Nonthaburi, Pathum Thani and Samut Prakan on Wednesday to cope with the political unrest.

The Bank of Thailand kept its policy rate unchanged on Wednesday, citing the need to anchor long-term financial stability over near-term risks from the political situation. The fact that it was a close call (4-3 vote) suggests that the central bank was definitely concerned about the current situation. Even if the February 2 election goes ahead, the public's perception is that it may not solve the political deadlock.

Looking forward, the December trade figure due this week is unlikely to lift the general mood. Exports are likely to remain soft at 1.2-per-cent growth on year, while the trade balance may remain in deficit of about US$1 billion. That would mean that exports were pretty much flat for 2013.

Sequentially, exports definitely picked up in the fourth quarter, by an average 1 per cent per month, up from the 0.3-per-cent average decline seen in the previous three quarters.

At this rate, export growth may recover to about 8 per cent this year, thanks to the anticipated improvement in global growth. We expect a slight uptick in GDP growth in the US. Elsewhere, the euro zone is recovering, albeit gingerly. Consumption growth in Asia remains supportive, offsetting the slight drag we may see from Japan this year.

We recommend overweight on the food, electronics, telecom and transportation sectors, which should be fairly resilient against the political uncertainty. Stock picks: Charoen Pokphand Foods (CPF), Delta Electronics (DELTA), KCE Electronics (KCE), Advanced Info Service (ADVANC), Airports of Thailand (AOT), Kasikornbank (KBANK) and PTT Global Chemical (PTTGC).

Tisco Securities

Equities have remained surprisingly resilient this month despite the declaration of a state of emergency in Bangkok and the deteriorating macro outlook.

The market believes that the Yingluck government's days are numbered and investors are already positioning themselves for a near-term resolution of the political crisis. Domestic and foreign funds are cashed up and appear well prepared to restock their portfolios if political tensions suddenly ease.

The market and bank stocks in particular got a small boost last week when the Bank of Thailand's Monetary Policy Committee (MPC) went against consensus and voted to keep its key policy rate unchanged at 2.25 per cent. Although the MPC judged that the political turmoil is just a short-term risk to the economy, it tapered its 2014 GDP growth forecast to about 3 per cent from 4 per cent.

Banks under our coverage reported 2013 net profit up 29 per cent to Bt180.6 billion, beating our and Bloomberg's consensus forecasts by 5 per cent and 2 per cent. However, we now see limited upside to our target prices and have downgraded our ratings on Siam Commercial Bank (SCB) and TMB to "hold" following the recent rebound in their stock prices.

Bangkok Bank (BBL) remains our top pick due to its resilient balance sheet, ability to benefit from a recovery in export growth and improving retail banking platform.

We also continue to favour the SET's external-facing sectors, which probably carry less earnings downside risk than domestic plays. In particular, we like Thai Oil (TOP) and Bangchak Petroleum (BCP) based on improved GRM prospects in the second half of 2014-15.

Finally, we have revised up our 2014-15 net profit forecasts for DELTA by 11 per cent and 12 per cent based on our new foreign exchange rate assumption of Bt33 to the US dollar, up from Bt31. In our view, DELTA remains one of the best dividend plays in the local market, with an average yield of 5-6 per cent over the next two years.

Research Department

Trinity Securities

The Constitutional Court unanimously voted that the election can be rescheduled. Based on its majority vote, the rescheduling of the election date shall be the joint responsibility of the prime minister and the Election Commission.

We see a greater burden for the government, as the court said a new royal decree can be issued to postpone the election, while the government has been insisting there was no room for that.

If the caretaker government turns to discuss with the EC on the election postponement, it is expected to be only a short-term easing, as the postponement is not the main demand of the protesters, who demand that the caretaker government resign.

The likely election postponement is not the final answer and the political unrest will continue. This will pressure the SET Index not to make big corrections. The political turmoil will also drag down the economic situation and estimates for listed companies' earnings. That means market fundamentals see no certain positive direction.

With the political chaos, Thailand's five-year credit default spread, an index reflecting the country's risks, rose to a new high late last week. As long as the political problems find no solution, the SET is likely to go up and pressure the baht. We recommend stocks that gain from the baht's depreciation: CPF, Thai Union Frozen Products (TUF), Sri-Trang Agro-Industry (STA), SVI, Hana Microelectronics (HANA) and KCE.

We recommend investors to take profits when the SET rises on the court's decision. This is a short-term positive factor. At above 1,300 points, the SET's valuation is not attractive if there is no positive surprise in politics like the resignation of the caretaker government.


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