The Nation

business

Smaller
Larger
market view

Local, foreign investors take different views of putsch

The SET Index was up by about 1 per cent over the last two weeks, closing at 1,408.5 points on May 29, relatively in line with regional peers represented by the MSCI Asia ex-Japan Index (+0.8 per cent).

The last two weeks saw another dramatic change in the Thai political situation. The military declared martial law on May 20, leading to net sells by foreign investors of Bt8.3 billion. Two days later, the military staged a coup at the May 22 market close, resulting in another round of heavy net selling by foreigners of Bt6.8 billion on the next day. The net-selling position gradually declined to about Bt2 billion per day during last week, but over the two-week period, foreign investors sold shares in aggregate of Bt32 billion.

After seizing power, the military set up the National Council for Peace and Order (NCPO) to take charge of political and economic reforms. One of the first few accomplishments was the disbursement of overdue payments to the farmers who took part in the rice-pledging scheme. An advisory board to the NCPO was later appointed to oversee security, foreign affairs, economic and legal aspects, and to push ahead with the infrastructure investments and disbursements of the 2014-15 fiscal budget.

All these were taken as positive moves by local investors. Retail and local institutional investors have been net buyers, of Bt15.5 billion and Bt13.5 billion respectively, during the last two weeks, while foreign investors remained uncertain of the situation.

The NCPO also recently announced a three-phase plan that should help reduce conflicts among various factions and lead to a more stable political platform in preparation for the next general election. The NCPO is expected to announce a detailed economic road map soon, which should provide a clearer picture, particularly on investments in infrastructure projects.

We witnessed the market's renewed interest in domestic plays, with focus on sectors that would potentially benefit from stronger consumption due to the payments to rice farmers, as well as a revival of infrastructure investments. These include mainly contractors and commerce.

However, with the strong price surge in these sectors, we see limited upside for some stocks. We recommend sectors that are still traded at reasonable multiples. These include banks and property sectors, and among the players, we favour KTB (KrungThai Bank), BBL (Bangkok Bank), SPALI (Supalai), QH (Quality Houses), AP and CPN (Central Pattana).

Tisco Securities

The Thai market has remained surprisingly resilient despite the imposition of martial law on May 20 followed by a full-blown coup two days later. Both events clearly raise the Thai country equity risk premium and have prompted Tisco's Economic Strategy Unit to downgrade its 2014 and 2015 economic forecasts further.

It now expects GDP growth of just 1 per cent this year and 3.5 per cent in 2015 based on the following key assumptions: 1) a soon-to-be-announced interim government that will run the country for 18 months, 2) no major violent protests because of tightened security and 3) a new election in 2016.

Our year-end SET Index target of 1,500, set on April 28, now looks optimistic and our previous target of 1,420 may be closer to the mark. Nonetheless, many local retail and institutional investors are generally quite bullish post-coup and have been buying as foreigners have been selling.

Their view is that the Army's total consolidation of power has created an environment in which previously intractable problems can be solved: 1) farmers' IOUs for the rice-pledge scheme are now being paid, 2) the 2015 budget is to be fast-tracked, 3) lending to small and medium-sized enterprises is to be facilitated, and 4) broader reforms (electoral and constitutional) can be addressed. All this is happening without the endless legal bickering, protests and counter-protests that have occurred over the past six months.

Another factor that may help support the Stock Exchange of Thailand in the near term is the return of strong fund flows to emerging markets as global investors chase yields. According to data from EPFR Global (as reported in The Wall Street Journal), global funds injected a net US$13.2 billion into emerging markets in April and May - the biggest increase in more than a year.

Whether Thailand benefits from any of this global wave of liquidity depends on the junta's ability to revive the economy quickly, restore peace and order, and encourage confidence among foreign tourists and investors. Early signs are encouraging but it is probably best to wait to see whom the junta names to the Cabinet before rushing back into the market.

As highlighted in our recent series of alerts, many big-cap stocks that we previously favoured are negatively affected by recent events. These include CPN (Central Pattana), AOT (Airports of Thailand), CENTEL (Central Plaza Hotel), MINT (Minor International), ADVANC (Advanced Info Service) and INTUCH (Intouch Holdings).

Although we maintain our "buy" rating on BBL (Bangkok Bank), share prices of major banks will be hurt if Thailand's economic/political malaise deepens, as these stocks are key foreign-investor proxies on the economy and the stock market.

Research Department

Trinity Securities

The SET Index rose above 1,400 points with high trading turnover after the National Council for Peace and Order's announcement of a more concrete economic policy. Although foreign investors continued to be net sellers of Thai stocks, local investors were buyers with higher risk appetite. Local investors' market participation rose to 56 per cent from 50 per cent the previous month.

Foreign sales will likely decline in the next period after current foreign shareholding stays below a long-term average. Importantly, foreign investors' market participation is very low at 22 per cent, compared with the past average of 26 per cent.

We expect the tourism group will become more attractive after the NCPO plans to approve an emergency budget aiming to stimulate tourism and may cancel the curfew in some areas. This is expected to increase the number of foreign tourists.

Previously, tourism stocks' prices went down and were 100 per cent factored into this year's likely weak performance. Foreign investors' low shareholding will result in limited selling of tourism stocks. Accumulate tourism-related stocks. Stock picks: MINT (Minor International), CENTEL (Central Plaza Hotel), ERW (The Erawan Group), AOT (Airports of Thailand), NOK (Nok Airlines).

Investment strategy: Continue to hold stocks and accumulate more at 1,380-1,400 points. The SET Index is expected to move sideways-up in June after the European Central Bank's likely monetary easing and Thailand's more concrete economic policy. Accumulate stocks in the following groups to wait for the SET Index' rises in the next periods.

1) Group that gains from likely higher consumer confidence: CPALL, ROBINS (Robinson Department Store), BJC (Berli Jucker), SINGER, AEONTS (Aeon Thana Sinsap), GL (Group Lease), TK (Thitikorn), DCC (Dynasty Ceramic), DRT (Diamond Building Products).

2) Big-ticket item group with high beta, compared with domestic consumption: QH (Quality Houses), SPALI (Supalai), PS (Pruksa Real Estate), RS, MAJOR (Major Cineplex), MACO (Master Ad), SIM (Samart I-Mobile), JMART (Jay Mart).

3) Tourism-related group: MINT, CENTEL, ERW, AOT, NOK.

4) Group that has been gradually accumulated by foreign investors during the past month and have low foreign shareholding: IVL (Indorama Ventures), BECL (Bangkok Expressway), BANPU, KTC (Krungthai Card), RS.

5) High alpha, high beta group: ITD (Italian-Thai Development), STEC (Sino-Thai Engineering and Construction), KTC, BGH (Bangkok Dusit Medical Services), SPCG.


Comments conditions

Users are solely responsible for their comments.We reserve the right to remove any comment and revoke posting rights for any reason withou prior notice.