Politics to dominate SET's movement over next two weeks

Economy May 06, 2014 00:00

By Chanpen Sirithanarattanakul

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The SET Index rose by just 0.4 per cent in the past two weeks to close at 1,414.9 on April 30, but still outperformed regional peers, with the MSCI Asia ex-Japan Index losing 1.8 per cent in the same period.

Foreign investors contributed to a net-buy position of Bt8.4 billion, while local institutions and retail investors were net sellers by Bt4.3 billion and Bt3.5 billion respectively. The market movers were smaller sectors related to mining, healthcare, paper and steel. Telecom, banking, agricultural and property were among the losers. 
Further developments in Thai politics have been rather slow since the Songkran holiday, with people waiting for the announcement of the Constitutional Court’s verdict on caretaker Prime Minister Yingluck Shinawatra’s transfer of National Security Council Chief Thawil Pliensri, and for the National Anti-Corruption Commission to rule on Yingluck’s alleged mishandling of the national rice-pledging scheme. The NACC may make an announcement either this Thursday or on May 13. 
If the NACC indicts the prime minister, she will be suspended from her duties and one of her deputies could then take over. On the other hand, if the Constitutional Court rules against her, she will have to step down. It remains to be seen if the caretaker Cabinet would also be removed. This could result in a political vacuum, which could pave the way for a “neutral government” to implement national reforms.
The developments could coincide with Democrat Party leader Abhisit Vejjajiva’s proposal for reform along with a new election. Meanwhile, the Election Commission and caretaker PM Yingluck have agreed to hold a new election on July 20. But this will come under the EC’s condition that the government must ensure a free and fair election, and that the polls must be violence-free. 
The EC may also postpone the election at locations where balloting is incomplete. Before the polls can take place, the EC must draft the Royal Decree for royal endorsement. Abhisit, however, has expressed concerns that if the election is held on July 20, there will not be enough time to implement his proposals.
At the same time, mass rallies are being planned by pro- and anti-government protesters. The pro-government demonstrators planned to hold a rally today,  before the Constitutional Court’s ruling on  Wednesday. The anti-government protesters also planned to hold a mass rally on the same day, and also on May 13-14 in what they call the final battle to oust the government. This has raised concerns of possible clashes between these two groups of protesters.
As we expect the market to be focused on politics over the next two weeks, we recommend that investors accumulate stocks that are politically neutral and have strong fundamentals. Our top picks include TTA (Thoresen Thai Agencies), SPALI (Supalai), QH (Quality Houses), KCE (KCE Electronics) and TVO (Thai Vegetable Oil). 
Research Department
Trinity Securities
In May, the SET Index may make temporary consolidation. However, there may not be significant selling pressure. We expect this month to see stocks with high alpha to tolerate the market volatility that may result from domestic politics. Stock picks for May:
1) Automobile stocks that will see the bottom of their performance in the first half: PCSGH (PCS Machine Group), SAT (Somboon Advance Technology);
2) Blue chips with attractive valuation: BANPU, BH (Bumrungrad Hospital);
3) Residential stocks that are expected to see satisfactory performance in the first quarter: SPALI (Supalai), LH (Land and Houses);
4) Stocks that see consistent expansion of exports or earn indirect benefits: KCE (KCE Electronics), GFPT, TVO (Thai Vegetable Oil);
5) Communications stocks with high growth: JAS (Jasmine International).
The following factors will need close monitoring: consistent surplus in the current account that stabilises the baht; satisfactory fund flows; and the European Central Bank’s tentative monetary easing midyear if inflation is low.
Risk factors include: a packed political schedule, including the National Anti-Corruption Commission’s decision on alleged graft in the rice-pledging scheme and the Constitutional Court’s final ruling on the status of caretaker Prime Minister 
Yingluck Shinawatra; and, Thailand’s announcement on first-quarter gross domestic 
product, which might have contracted from the same period last year.