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Only six of 28 sectors decline, but foreigners still underweight

The Stock Exchange of Thailand continued to record impressive performance in the last two weeks, gaining another 1.7 per cent to close at 1,543.92 on July 24.

Major sectors that outperformed the broad market were transportation and logistics, which gained 6.4 per cent in the period. The energy sector gained 3.9 per cent, similar to the insurance sector, while the healthcare sector gained 3.6 per cent. Finance, property, and commerce sectors all outperformed the SET.

Only six of the 28 sectors registered declines, led by the ICT (information and communications technology) sector, which fell 3.9 per cent, and construction materials, which shed 0.8 per cent.

Generally, market sentiment remains cautiously optimistic. The outlook for next year is positive as most of the economic engines are getting into gear, while investors and analysts alike are rolling over stock valuation bases to next year.

However, the richer valuations are leading to fears of a market consolidation.

In fact, foreign investors remain significantly underweight in Thai shares with the year-to-date net-sell position at Bt21.8 billion or US$680 million. Last year also, they were net sellers, at Bt194.7 billion or US$6.1 billion.

But funds are starting to return. In the last two weeks, they bought Bt8.9 billion worth of Thai shares. Going forward, the foreign-money inflows will continue on expectations of an improving and clearer economic outlook for next year. This will support the Thai market.

On the domestic front, local investors are willing to buy shares on dips in anticipation of better prospects in 2015, ignoring the weak business environment this year.

The key near-term plays are property, food, electronics, and tourism-related sectors.

Property companies are reporting impressive sales, which suggest stronger earnings in the latter half of this year.

The tourism sector is entering the high season in a few months. The year-on-year comparisons should be impressive because of the weak base last year as a result of political unrest and subsequent travel warnings issued by several countries.

Our preferred stocks are AP, CHG (Chularat Hospital), GFPT, KCE (KCE Electronics) and SPALI (Supalai).

Trinity Securities

Research Department

We suggest investors gradually lessen portfolios as the SET Index may decline over the next month on lower liquidity in the country and less capital flow.

Although capital has been flowing into Thailand since the beginning of this month as expected, most of it, as we examined recently, has been for short-term investment. This is reflected by about 75 per cent of the capital moving into short-term debt instruments. Nearly 100 per cent of that flowing into the Stock Exchange of Thailand was net buys through the NVDR (non-voting depository receipts) board. However, simultaneously, foreign holding of Thai stocks in F-shares dropped.

This phenomenon has prompted us to see most of foreign capital in this round as speculation. Usually, such investment takes profit in the short term. If the baht depreciates, that may trigger foreign investors to lock in profit in the stock and bond markets instantly.

We still see an investment theme in the planned restructuring of state enterprises in the next period. This came after the Ministry of Finance set up a "superboard" to formulate a strategy for administration and approval of state enterprises' investment to optimise benefits. This could lead to improved efficiency and transparency, and a positive effect on the performance of related companies such as PTT, THAI (Thai Airways International) and AOT (Airports of Thailand).

This week, the July 29-30 meeting of the US Federal Open Market Committee is expected to be the turning point for global capital again if some FOMC members decide the federal funds rate should rise faster than scheduled. Strong US employment figures and rising inflation may prompt markets to price in such factors and capital may return to the US and leave emerging-market countries.


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