Fund flows continue to support SET

This week, the stock market is expected to continue gaining support from fund inflows.

Based on ASP Research's data collection, foreign investors were net buyers of Thai stocks totalling Bt33.9 billion from November 29, 2011 to February 9. The amount excluded a major foreign shareholder's Bt8.1-billion stock sales in INTUCH to domestic institutional investors in January 2012, and Bt7.9-billion sales of ADVANC stocks to foreign investors in December 2011. The inflow of foreign capital was the result of easing monetary policy and fund-injections into the financial systems of developed countries. The US announced it would maintain low interest rates in the next two years, while the euro-zone countries injected money into the financial system and lowered interest rates in an attempt to stem sovereign debt problems in several countries.

The result is high liquidity, some of which has flowed into risky assets including commodities and stock markets, boosting their prices. This development is likely to continue in the Thai stock market for a certain period.

Based on foreign investors' trading information since 1998, foreign investors' net buying position was about Bt63 billion per round. This indicates there is a high chance that foreign investors will continue their net buying, boosting the possibility that the SET Index will trade above a price to earnings ratio (P/E) of 13 times. At this P/E level, the SET Index is expected to reach 1,121 points in the first quarter and 1,144 points in the second quarter.

ASP Research suggests more weighting for commodity-related stocks and industrial estates. Among commodity-related stocks, PTTGC (fair value at Bt87.29) is the most outstanding in the petrochemical group. PTTGC earns revenue from both aromatics and olefins. It's also expanding into other value-added products.

Among energy stocks, PTT (fair value at Bt431) is the most outstanding with its share price far below its fundamentals. It also benefits from higher prices of fuel and petrochemicals.

For major industrial-estate operators, 2012 will likely be a good year for land sales. Combined land sales of AMATA, HEMRAJ and ROJNA are likely to top 5,000 rai in 2012, compared to 3,650 rai in 2011. Aside from investors from Japan, the US and Europe, Chinese investors are looking for land. Stock picks are HEMRAJ and AMATA.

HEMRAJ (fair value at Bt3.41) has strength in its revenue and financial structures, which are ready for expansion. In 2012, its profit base is expected to more than double the previous year's. AMATA (fair value at Bt24.01) generates 70 per cent of total revenue from land sales and could benefit from expected higher land sales in 2012.

Tisco Securities

Strong foreign fund inflows in recent sessions have helped boost the SET's gains year-to-date to 9 per cent, with the index closing last Thursday at a six-month high. Foreign investors bought Thai equities worth a net Bt19.4 billion in the first seven trading days of February, versus Bt3 billion for the whole of January. Our end-2012 SET target of 1,160 implies further upside, although we could see a new bout of profit-taking in the very short term amid continuing concerns over Greek debt.

Investor sentiment appears to have been lifted by the improvement in Thailand's supply-side economic indicators. The manufacturing production index (MPI) fell by 25.8 per cent year on year in December but rose by 39.1 per cent month on month after supply disruptions eased in industries hurt by the floods. Meanwhile the industrial capacity utilisation rate rebounded to 52.3 per cent after plunging to a record low of 40.5 per cent in November.

An easing of price pressures, which led to the Bank of Thailand cutting its key policy rate by 25 basis points to 3 per cent on January 25, is also positive news for the market. Headline inflation dipped to 3.38 per cent in January from 3.53 per cent in December while core inflation edged up to 2.75 per cent from 2.66 per cent. Meanwhile, Thailand's Consumer Confidence Index, as measured by the University of the Thai Chamber of Commerce, rose to 64 in January, the second straight monthly increase.

We continue to favour global cyclicals in the energy and petrochemicals sectors, whose fundamentals are supported by recent gains in oil prices due to geopolitical tensions between the US and Iran and the extremely cold winter in Europe. We have also turned more positive on hotel stocks following the 46 per cent month on month rise in foreign tourist arrivals in December and the withdrawal of travel advisories by the US, China and major European countries that previously warned of possible terrorist attacks in Bangkok.

Although we remain neutral on banks, the sector may get some support from the government's decision to delay the new levy on commercial banks' deposits pending the Constitution Court's ruling on whether two out of four emergency decrees issued by the Cabinet are lawful.