Fund flow remains a factor for market direction

Tough US budget negotiations will have an impact on the global markets

Last week, the Stock Exchange of Thailand (SET) Index moved with relatively high volatility, falling to the lowest at 1,518 points before rising to a new high (above 1,548 points).

Based on an assessment, excess liquidity in the financial system remains a main driver for the SET Index, which is seeing current price to earnings ratio (PER) of more than 17 times and forecast PER of 15.2 times at the end of 2013, the highest since the Asian financial crisis. At the market PER, stock accumulation for long-term investment is not appropriate for the Thai market now. However, short-term speculation may be more practical for profit taking with caution.

This week, the following factors weigh on the Thai stock market.

Direction for avoidance of the US fiscal cliff:

On February 28, an attempt to push for a legal draft to replace cut in expenditure, however, did not get sufficient votes from senators. Thus, leaders in the Congress have to renegotiate during the weekend. It is possible to reach a conclusion to confine the impact to the overall system: a cut in some types of expenditure, a tax increase for the rich (annual income of more than US$1 million). Despite avoiding a cut in expenditure, the US still needs to extend its debt ceiling before May 19 due to the full US debt ceiling and US budget deficit. Thus, the US has to make more borrowings. In conclusion, the US remains at risk and could put pressure on stock markets.

The Bank of Japan's easing of monetary policy: It is possible for foreign investors to return to Asian countries at least in the short term through speculation on Japan's planned appointment of Haruhiko Kuroda as the new BOJ governor. Japan may signal or announce an easing policy instantly at the BOJ meeting in April.

In February, foreign investors were net sellers of Thai stocks worth Bt17.3 billion (including a big lot of CPALL for Bt9.3 billion, while local institutional investors became net buyers of Thai stocks worth about Bt15.3 billion. In comparison, January saw foreign investors as net buyers of Thai stocks Bt20 billion. Local institutional investors' buying came partly from launch of four trigger funds worth Bt9 billion and this could offset foreign investors' selling sprees.

The SET Index rose 11 per cent from the beginning of this year and trigger funds might gain targeted profit and sell to close themselves this month.

Regulations of new cash balance and sell on fact after announcement of earnings performance:

Medium and small caps could see high volatility after the announcement of 2012 earnings performance (financial statements must be delivered before the stock market opens on March 4.). It is possible to see sell on fact in stocks that do not have higher-than-expected earnings results. This week, the SET starts its new rules for stocks traded through cash balance accounts. The cash balance period is being extended from three weeks to six weeks. Small and medium cap stocks could see unusually high trading turnover with high price volatility.

Investment is suggested in stocks with high profit growth potential.

HMPRO (@ Bt19.7) is expected to record earnings per share growth of 17 and 23 per cent for 2013 and 2014 respectively due to new brand support and future establishment of property funds.

SVI (@Bt6) is expected to double profit in 2013, given normal plant operations and purchase orders from 5-6 new customers.



Kitpon Pripisankit

Equity analyst & strategist

Kasikorn Securities

Although the Thai stock market declined only 0.53 of a point or 0.53 per cent last week, its highest-lowest ranged 31.8 points, signalling no confidence of investors after most stocks had priced in good news and the earnings performance announcements last Friday. Foreign investors staged a return to become net buyers on the last two trading days. However, we expect this round of foreign buying as gradual accumulation when stock prices decline rather than driving up prices.

The first two weeks of March are expected to see slowdown of drivers for upside, despite announcement of positive economic figures. Pressure will come from the US budget negotiations between the Democrats and the Republicans on March 27.

We forecast downside to limit at 1,450-1,470 points and see expected declines in the first half of March as good opportunities to buy.

This week, the stock market will likely move with volatility and has a chance to decline. Investment strategy should focus on stocks with sound fundamentals, cheap prices and chance for earnings upward revision.

Stock picks include AAV, ADVANC, MAJOR, KCE, SVI, SOLAR, JAS, TRUE and TTA.

Be careful of profit-taking in property stocks after the recent sharp rise in prices.