Macroeconomic risks imminent
Late last week, risky assets across the world dropped after: 1) an announcement of Europe's lower-than-expected Flash Purchasing Managers Index; 2) measures to control speculation on China's property and 3) the minutes of the Fed Open Market Committee meeting showing different views.
The US dollar continues to appreciate. We expect this to continue, pending the results of Italy's election, which culminated yesterday, and the US sequestration, which will be effective on March 1. Both issues could pressure risky assets this week.
Six of the seven members of Thailand's Monetary Policy Committee (MPC) voted to leave the policy rate unchanged at 2.75 per cent as we expected. We view no significant impact on capital movement from the MPC decision to maintain the policy rate, as Thailand's real interest rate currently remains negative, as reflected in very low figures for the one-year financial negotiable note, less inflation, compared to those of other Asian countries. We also expect the baht not to appreciate with any significant impact in the coming period.
Investment strategy: We forecast the SET Index to gain limited upside of 2-3 per cent (1,550-1,565 points) in the next month, compared with downside of 6-7 per cent (1,415-1,430 points). Therefore, selective strategy is focused on individual stocks.
We estimate the SET Index to follow the dollar/yen movement. Stock picks: 1) stocks that are expected to gain from high trading turnover (Bt55 billion per day from the beginning of this year). We expect such stocks to double their profit this year; and 2) stocks with low price-book value and high return on equity: SVI, TCAP, TISCO, BCP, BBL, BAY and TICON.
Head of research
DBS Vickers Securities (Thailand)
The SET Index gained 2.1 per cent over the last two weeks to end at 1,528.74 last Thursday, beating regional peers' 0.8-per-cent average return. Market movers were property and construction, financials and banking, and consumer products.
Our outlook for the US economy remains bearish despite the US$2 trillion (Bt60 trillion) injection into the economy under the third round of quantitative easing (QE3) since the second quarter of 2008. US economic data have so far revealed limited upside to our forecast of 2-per-cent growth in gross domestic product for 2013. Growth remains weak while inflation is still declining. Headline and core consumer price index inflation are now both below 2 per cent year on year.
Jobless claims rose again from the week before. The Fed Open Market Committee is growing uncomfortable with the commitment to continue with QE3, which promises to improve the labour market. The Thai economy, on the other hand, appears promising. GDP in the fourth quarter of 2012 expanded by 3.6 per cent quarter on quarter (up 18.9 per cent year on year), exceeding consensus estimates.
This is a mix of base effect plus strong domestic consumption and corporate investments.
The latest Monetary Policy Committee meeting voted to hold the benchmark rate at 2.75 per cent, as expected, due to the strong domestic economy. We expect 2013 GDP to grow by 5 per cent, supported by solid domestic demand and possibly an accelerating investment cycle. The strong domestic consumption, however, could lead to higher inflation. We pencilled in a 25 basis point hike in the benchmark rate for the fourth quarter of 2013.
Meanwhile, exports will be a big swing factor depending on the pace of recovery of global demand. We view that the baht is still relatively competitive compared to regional peers.
Meanwhile, the Thai corporate sector continues to report results for the fourth quarter of 2012; they have been within expectation thus far. We retain our bullish view on the Thai market, with expectation for 17 per cent earnings per share growth in 2013. We continue to overweight the property, banks and construction sectors.
Buying by new trigger funds should continue to support Thai equities despite recent net sales by foreign investors. Foreigners have sold a net Bt12.7 billion of Thai stocks so far this month amid a slowdown in capital inflows due to the Chinese New Year and reallocation to other Asian markets. Investors continue to focus on companies expected to announce strong fourth-quarter earnings and/or good dividends. However, the Stock Exchange of Thailand's near-term upside may be capped by the correction in global financial markets after minutes from the US Federal Reserve's January meeting indicated that it might prematurely end its quantitative easing programme. Also, global markets are concerned about the re-emergence of political uncertainty in Spain and Italy and the looming US budget battle.
On the domestic front, the National Economic and Social Development Board's release of new GDP figures makes it clear that Thailand's economy is firing on all cylinders. The economy expanded in the fourth quarter of 2012 by 18.9 per cent year on year (versus our forecast of 15.4 per cent), raising full-year 2012 GDP to 6.4 per cent.
As we had anticipated, the Bank of Thailand kept its key rate unchanged at 2.75 per cent at its February 20 policy meeting, with the Monetary Policy Committee expressing fresh concerns about inflation risks and financial stability. In the energy sector we have downgraded our rating for PTTGC to "hold" after its recent strong rally and recommend investors to switch to TOP (new target price of Bt84 per share).
We believe upcoming planned refinery maintenance shutdowns in the region in March and April, coupled with a decline in Murban crude premiums, will result in a substantial increase in TOP's refining margins in the near term.
We continue to like selective infras-tructure plays and have revised up our target prices for STEC and AMATA to Bt37 and Bt26.50 respectively. Note that AMATA's 2012 net profit of Bt1.45 billion was up 60 per cent year on year and 17 per cent better than market expectations. Other stocks we like at current levels include BBL, SCB, KBANK, HEMRAJ, CPF and CPALL.