Fund flow supports global bourses

US stock market and economic figures continue to affect the global stock markets. The markets should wait on the progress of solutions to the fiscal cliff after the US managed to avoid the problem temporarily with a rise in taxes for those with incomes of over US$400,000 (Bt12 million) per year and the postponement of a budget cut of $100 billion to the end of next month.

However, the US needs to extend its debt ceiling, which is close to the limit of $16.4 million. Recently, Congress passed a law to temporarily extend the debt ceiling until May 19. This is to buy time for negotiations of the debt ceiling extension. However, the prolonged budget deficit problem has not yet been solved decisively and may return to pressure the market.

It is believed that the global stock markets will continue their rises in response to positive developments in the easing of the European sovereign debt crisis after Greece's acceptance of gradual disbursement of financial assistance, and the extension of the US fiscal cliff problem. Stock market indices in Asia, including Japan and India, are found to hit major resistance levels on expectation of less upside of 3-5 per cent. It is likely that Asian stock markets are at risk of short-term corrections.

The baht volatility returned last week in a range of 29.70-30 per US dollar after six months of appreciation, prompting fund flows to slow down to support the SET Index. That is, foreign investors turned into net sellers of Thai stocks worth Bt410 million last week after being net buyers of Thai stocks worth Bt5 billion in the week before last.

It's the same for the futures market with a short position of 1,400 contracts. In January, net short positions totalled 5,700 contracts. This may be a signal for a reverse in fund flow direction, prompting foreign investors to opt to sell Thai stocks to lock in profits from capital and currency gains, pressuring the Thai stock market to make corrections.

Amid the appreciating baht and stock market volatility, two strategies are recommended. One is to select high-dividend stocks, particularly big caps with regular dividend payments. Stock prices tend to rise two months before XD posting. Based on a study of past data, if stocks are bought two months before XD and sold two weeks after XD, returns averaged 6.8 per cent from capital gains and the dividend payment. This is based on a 70-per-cent probability of a positive return. Top picks are DTAC (FV@B 110) and TOP (FV@B 90) with upside of over 20 per cent.

The second is to benefit from the baht appreciation by earning baht income with foreign currency costs. At TVO (FV@B32), for every one baht of appreciation, its profit rises by 15 per cent. Its dividend yield is over 6 per cent per year. SIMT (FV@B 5.42) is a machine importer with a dividend yield of about 6 per cent.

Kitpon Pripisankit

Vice president, Research Department

Kasikorn Securities

Last week, the SET Index rose 37.81 points or 2.59 per cent, driven by the announcements of satisfactory economic figures - including German consumer confidence, US housing prices and US earnings - and capital inflow into Asia with the focus on energy and property groups. This week, we expect the SET to remain positive and continue its rise with some volatility, subject to impact factors. However, foreign fund flow supports lower-than-market valuations in energy stocks, which weigh largely on the SET Index. This could drive the SET up. There are no major economic figures that tend to be negative. We expect the SET to test 1,530-1,560 points in two weeks, or mid-month.

We focus on big caps with strong fourth-quarter earnings and a likely upward revision of earnings estimates and lower valuations than the overall market, as well as high-dividend stocks. Most are in the energy sector, refinery business and communications group. Stock picks are PTT, PTTEP, TOP, ADVANC, DTAC, TRUE, JAS, TICON, MAJOR and NMG. Speculation on ITD.