Fund flows to further support stock market
In the past two weeks, foreign capital continued flowing into the Thai capital markets, particularly the bond market. Foreign capital worth about Bt8 billion-Bt10 billion per day has flowed into Thailand's short-term bonds, driven mainly by the Japanese yen carry trade. The move came after the Bank of Japan (BOJ) employed unlimited asset purchases.
The market was also propelled by good news on the US House of Representatives' approval of laws for extending the public debt ceiling for three months, lessening risks for the likely downgrade of the US credit level, which could happen next month.
Trinity has studied fund flows' impact on the SET Index. It was found that as far as buying value is concerned, all foreign investors averaged more than Bt10 billion per day.
The SET Index will continue its momentum for about two more weeks with an increase of 1.4 per cent from the current level of 1,470 points.
Among this week's major issues is the January 29-30 FOMC meeting. The Fed statement could be hawkish after the US economic figures came out very satisfactory and that may disappoint the market for a temporary period.
Investment strategy: The overall environment has been relieved on less concern over the extended US public debt ceiling. However, another major risk remains - Italy's election late next month. It is possible for the new prime minister to decide not to continue the tightening measure as agreed with the Troika.
For this period to the middle of February, the macro picture has improved, however, the SET Index's valuation stays high.
Accumulative buys when the market is down during a trading day are attractive for investment. We should keep an eye on measures that may arise to slow down fund flows into the Thai capital markets during this period.
Vice president and strategist
Although the SET Index rose 3.8 per cent from the beginning of this year and 14.5 per cent in the last two months, the global economy bottomed out the third quarter of 2012 and has staged a recovery this year. This could give a positive push to listed companies' earnings estimates.
Listed companies are likely to enjoy an upside risk with higher earnings than the market's expectation. Equities remain the best investment alternative, compared to other financial assets, including oil, gold and debt instruments, which have limited upside risk. Therefore, we see high opportunity for trading stocks at higher P/E ratios or with P/E rerating in 2013. Based on the long-term P/E average of 13 times, Thai stocks could be traded at 15 times or 1,700 points. The overall strategy is accumulative buy.
Last week's stock market was supported by better-than-expected earnings announcements of listed companies in the US and satisfactory economic figures, particularly for manufacturing.
Most of the US economic figures to be announced this week are related to confidence, retailing, and services, and GDP for 4Q12. Most continue to gain momentum. The Thai stock market, thus, is expected to test 1,500 points this quarter.
Stock picks include KTB, TCAP, PTTGC, TOP, AP, TICON, ADVANC, TRUE, MAJOR, NMG and SPCG.
It's been off to the races for the SET this month, with daily volume thus far averaging 26 billion shares per day. This represents a 146-per-cent spike over December's average of 10.6 billion shares and nearly 400 per cent over 2012's average of 5.2 billion shares. Daily market value has also been off the charts, averaging Bt53 billion or 72 per cent above last year's daily average of Bt31 billion.
Relaxation of global macroeconomic concerns - the US Congress reaching agreement on the debt ceiling (although this issue will again rear its ugly head in three months), Eurogroup approval of the next 9.2-billion euro Greek bailout disbursement, and the BOJ's ramp-up of its QE programme - should further bolster the risk-on sentiment currently seen in the market and encourage greater equity allocation.
Baht appreciation remains a concern for FDI and exporters alike as the Thai currency reached 29.63 on January 21 - its lowest level in 26 months. However, the government continues to deflect calls for intervention as it pursues other measures to cool the rise. We see the trend of large-caps such as CPF, PTT and INTUCH channelling capital abroad in search of new growth markets as providing a measure of balance to the influx of funds to Thailand.
After a 40-per-cent, five-year relative underperformance, we see upside for the fossil-fuel-linked sector from the current historical cycle average sector P/BV multiple of 1.5 times. This upside should be driven by the recovery underway in petrochemical spreads, bottoming of China's GDP growth, and a tame global oil price - aiding spread, GRM and volume environment for crude-based producers.
The SET is near our previous year-end 2013 target of 1,450, so we raise our target to 1,650 (13.8x PE FY14E) for 15-per-cent upside. A new all-time high of 1,800 - a further 9-per-cent upside - looks possible during 2014.
Our top picks are CPALL, INTUCH, CPN, KBANK, BAY, KTB, HEMRAJ, CPF, TOP and BANPU.