The political situation has put pressure on the economy and stock-investment sentiment.
Between October 31, when the protests started, and January 16, the SET Index dropped 121 points or 8.5 per cent. During that period, foreign investors were only net sellers on the Stock Exchange of Thailand. Foreign net selling then totalled Bt89.9 billion.
On the fundamental front, the political developments prompted a cut in the growth estimate for 2014 gross domestic product from 4.3 per cent to 3.3 per cent mainly on likely drops in household consumption and tourism and services.
Forecasts for listed companies’ earnings this quarter are being lowered. This is in contrast to the normal situation, where the first quarter has consistently seen the highest profits of the year since 2010. For all of 2014, forecasts for listed companies’ net profits are slashed by 2.6 per cent from Bt911 billion or Bt104.57 per share to Bt899 billion or Bt101.85 per share. If the political situation continues without satisfactory solutions, there remains a risk for further cuts to net-profit estimates.
The political issues will continue to weigh on the SET Index this week. The protests need monitoring and are expected to heighten as the election approaches over the next two weeks. A political vacuum is highly possible even after the February 2 election, with no end in sight to the impasse. Overall, local political factors continue to put pressure on the market with likely consistent foreign net selling on the Thai stock market.
At the end of 2013, the SET Index closed at 1,298.71 points. Last week, the index rose above its 2013 base, moving against the fundamentals as stated above. Given its adjustment, the SET’s price-to-earnings ratio rose above 14.3 times (based on the SET Index at 1,300 points). At the estimate for growth in 2014 earnings per share of about 13 per cent, the current market P/E ratio remains at the upper limit of the SET Index’ movement, which limits its upside. Combining this with existing negative factors, market corrections could be seen.
In such a situation, investment should be made with caution. About 30-50 per cent of the total investment portfolio should be in equities and the rest in cash or short-term debt instruments. The following stocks should be focused on.
Stocks with minimal exposure to the local situation: PTTGC (PTT Global Chemical, fair value Bt91.78) with the upward trend for its petrochemical business; STPI (FV@Bt28.36) with wholly overseas projects, high margins and likely jump in profit.
Stocks with high dividend yields: INTUCH (Shin Corp, FV@Bt109) with consistently high dividend payments and dividend yield, at the current price, of 5.8 per cent per annum; PYLON (FV@Bt7.48) with dividend yield, at the current price, of 6.7 per cent.
Stocks with benefits from the global economic recovery and baht depreciation: CPF (Charoen Pokphand Foods, FV@Bt33.78) with expected profit turnaround in 2014; DELTA (FV@Bt70.40) with growing profit and dividend yield of more than 5 per cent per annum.
The SET Index closed at 1,295.41 points, up 39.96 points (about 3 per cent) last week despite the “Bangkok shutdown” that began last Monday.
The index rose sharply from the beginning of last week on the government’s plan to discuss postponement of the February 2 election, the International Monetary Fund’s announcement of upward revision of the forecast for global economic growth, and satisfactory US economic figures.
This week is expected to see market volatility. The SET Index is likely to rise to test 1,320 points on expectations of a cut in the policy rate by 25 basis points to stimulate the economy. This could benefit property stocks and investment sentiment.
However, the SET Index may move sideways/down on concerns over the heightened political situation and money- and capital-market fluctuation as a result of expected consistent reduction in the US quantitative easing programme. The Stock Exchange of Thailand will be attractive for investment when the index is in a range of 1,250-1,280 points.
When stock prices decline, gradually accumulate those with good fundamentals, low prices and high dividends. Stock picks: ADVANC (Advanced Info Service), INTUCH (Shin Corp), SAMART, TICON, PS (Pruksa Real Estate), KTB (Krungthai Bank) and EGCO (Electricity Generating).
Speculate on property stocks on a likely rate cut before Wednesday’s meeting of the Monetary Policy Committee. Stock picks: PS, AP, SPALI (Supalai) and QH (Quality Houses).