The SET Index has finally managed to stay above the 1,550 mark to close at 1551.41 points for a 15-month high on Thursday. Market sentiment has now turned positive in tandem with regional markets on the back of several factors.
Geopolitical tensions have eased in both Russia-Ukraine and Israel-Palestine. Investors have increased their optimism for the global economy. Among major sectors, property, banking and healthcare services all outperformed the broad market, rising by over 3 per cent compared with the 1.9-per-cent gain of the SET during the last fortnight. The energy sector also outperformed with a 2.7-per-cent uplift during the period.
Underperformers were food, construction materials and communications, which rose only 1.0-1.7 per cent. Commerce, however, posted a decline of 0.49 per cent.
Foreign investors became net buyers of Thai shares worth Bt2 billion during the last two weeks. However, they are still net sellers of Bt25.4 billion worth of Thai stocks to date.
Second-quarter earnings have mostly been released. So far, listed companies posted an average net-profit increase of about 16 per cent from last year, which is quite impressive. However, first-half profit was flat on year.
The energy and utility sector reported increases of 141 per cent on year for the quarter and 19 per cent for the half year. Petrochemical and chemical companies did well, with second-quarter profit rising 49 per cent. However, their first-half net profit still declined by 14 per cent.
We are impressed with the food and beverage sector as its second-quarter net profit rose 14 per cent on a quarterly basis and 78 per cent on a yearly basis. First-half net profit soared 54 per cent on year. The second-quarter net profit story tells us that the recovery is not yet broad-based. However, there are hopes for improvement in the coming quarters.
We do not expect the Thai market to enjoy a strong rally. Money inflows will be gradual. The SET is not cheap, trading at a 2014 price to earnings (P/E) of 15.8 times, slightly below regional peers, as Malaysia is trading at 16.8, Indonesia at 16.9 and the Philippines at 20.
Economic prospects in Indonesia and the Philippines are better than in Thailand. However, we do not expect any major market consolidation. We believe that positive news will flow into the market in the coming months and offer good support. Besides, foreign investors who are currently underweight on Thailand will snap up Thai shares on weakness.
Our picks are Kasikornbank (KBANK), KCE Electronics (KCE), Samart Corporation (SAMART) and Supalai (SPALI).
The Thai market has ignored lacklustre second-quarter results and continued its uptrend, supported by robust foreign fund inflows, the entry of new domestic trigger funds and the rise in the July consumer confidence index to an 11-month high. Other factors boosting sentiment include renewed political stability and expectations of accelerating economic recovery. However, we estimate that 60-70 per cent of earnings results have disappointed – in a quarter when analysts should have already expected disappointment. Therefore, it is possible that the pace of recovery in the second half and next year might also fall below investors’ expectations.
According to the NESDB, GDP in the second quarter expanded by 0.4 per cent year on year versus a 0.1-percentage-point upward revision to -0.5 per cent previously, broadly in line with our expectations of 0.8 per cent and market consensus of no growth. The NESDB also trimmed its 2014 GDP growth projection to 1.5-2 per cent from 1.5-2.5 per cent.
Tisco’s Economic Strategy Unit maintains its 2014 GDP growth forecast at 1.5 per cent but has revised up its 2015 estimate by 0.8 percentage point to 5.3 per cent to reflect better-than-expected domestic demand. The unit is also more upbeat about public spending after the NLA voted unanimously on August 18 to approve in principle the Bt2.575 trillion budget bill.
With the results season at an end, there appears to be a lack of new catalysts to drive the market significantly higher in the near term. We remain overweight on the banking sector despite the slowdown in loan growth last month for the six banks under our coverage to 4.6 per cent on year. Our top picks remain TMB, KBANK, SCB and BBL.
The other major sector we are overweight on is residential property. Although July presales for the seven stocks under our coverage fell 36 per cent on month and 7 per cent on year and sales continue to be dragged down by condos, we expect a marked improvement in buyer sentiment over the next 12 months as launch flow accelerates. Our top buys in the sector are LH, AP, LPN and QH.
Since the August 20 US Federal Open Market Committee meeting, the US dollar has been strengthening. The Dollar Index rose to a record high since September last year. The short-term US bond yield also rose. These reflect investors who have started pricing in the possibility of the Fed making a faster-than-expected rate hike. This issue may lead to capital moving out to the US. The estimated capital outflow may be offset by capital expected to be flowing into Thailand from Japan and the eurozone.
Investors may hold stocks until the middle of next month at least. There will be positive factors including the expiry of Bt50-billion local savings bonds this Tuesday and Bt10-billion savings bonds in the second week of next month. Some of that money may go into the stock market, particularly stocks with dividend yields of over 6 per cent. Our picks: INTUCH, BTS, SRICHA and ADVANC.
Another key positive factor is Thailand Focus late this month. This may help regain the confidence of investors, particularly foreign ones. Based on our study, since 2004 – excluding 2008, the year of the economic crisis – the SET Index has usually seen satisfactory development during the three weeks after the event.