The SET Index continues its upward momentum, gaining 2.1 per cent during the last fortnight to close at 1,507.92 on Thursday.
The Thai market has outperformed the MSCI Asia ex-Japan Index, which rose 1.4 per cent.
The major driver was banking, which advanced 5.1 per cent, followed by electronic components at a similar rate. Other sectors outperforming the broad market were finance, mining, property, construction services, construction materials and fashion.
In fact, 21 out of 28 industrial sectors reported gains, leaving only seven with losses, led by paper and printing materials, professional services and healthcare.
Foreign net buys accelerated to Bt11.1 billion during the last two weeks after the Bt4.9 billion net bought during the preceding fortnight.
Domestic factors have already bottomed out and are setting the stage for a V-shaped recovery. Domestic consumption will be improving as indicated by the consumer confidence index surging to 75.1 last month.
Although the high level of household debt may be a drag on consumer spending, we believe it will soften over the next two years. National household debt, mostly car loans, following the car-buying incentive programme introduced in 2012, should be repaid within two years.
Private investment is improving after the Board of Investment accelerated its approval of project applications.
The tourism industry’s high season is only a few months away, which should set the stage for a solid rebound after the poor performance during the same period last year due to the political unease.
Exports will also gradually recover along with the improving outlook of Thailand’s trading partners.
We envisage money to continue flowing into emerging markets during the last two weeks, according to the data among major ETFs that we track. This is in tandem with the money flows into the Thai market.
We believe money will continue swinging into the region, given the stretched valuations in developed markets particularly in the US, where the market is hovering around its historical high.
We remain upbeat on domestic plays. Our preferred sectors are property, banks and tourism. Our stock picks are AMATA, AP, PS, CENTEL, BBL and GFPT.
Business and consumer activities improved significantly last month, with the consumer confidence index rising to its highest level in eight months.
The Bank of Thailand has now turned more optimistic over public investment spending, prompting it to raise its 2015 GDP forecast from 4.8 per cent to 5.5 per cent. This factor, in our view, should boost business confidence, leading to a faster-than-expected recovery in private investment.
Near-term investor interest is likely to centre on banks, which are set to release second-quarter results over the next few days. We expect net profit of Bt46.8 billion for the seven Thai banks under our coverage (+2% YoY, +1% QoQ), with KTB and TMB likely to show the strongest earnings growth on lower provisioning.
For SCB and KBANK, there is potential for positive surprises stemming from gains in loan/fee demand from retail/SME customers and deposit cost management.
Some bank earnings may continue to reflect the effects of the recent political turmoil in the form of sluggish loan/fee income from large corporations (BBL) as well as weaker auto loan quality (TCAP, KKP). While the sector has outperformed the SET by 7 per cent since the May 22 coup, we believe there is more positive momentum ahead in this half with valuations set to approach +1STD.
In the utilities sector we have revised up our 2014 and 2015 earnings forecasts for EGCO by 4 per cent and 13 per cent and our target price by Bt8 to Bt176 to reflect its acquisition of a 41-per-cent indirect stake in the Masinloc power plant in the Philippines. We like EGCO’s strategy of targeting lucrative regional opportunities as well as its attractive dividend yield of 5-6 per cent.
KCE remains our top pick in the electronics sector despite market concerns about potential damage to Thai-EU relations because of the May 22 coup.
First, we believe EU measures against Thailand will have no impact on KCE as it exports PCBs for the European auto industry – a niche market with relatively few global competitors.
Second, we expect KCE to post record net profit for last quarter.
Third, with a new factory scheduled to start production next quarter, 2015 should be another bumper year for the company.
Fund flow continues its satisfactory movement, as reflected in net buys in both the stock and bond markets.
Based on our data, foreign holdings of Thai stocks stay at 33.4 per cent of total holdings – below the long-term average of 34.1 per cent. This mirrors the possibility of foreign investors scooping up more Thai stocks.
Big caps in banking, energy, communications and property groups could gain.
This week’s most positive factor is the country’s liquidity, which increases when Thai savings bonds (Thai Khem Kaeng savings bonds) worth Bt80 billion reach maturity.
The Finance Ministry plans to issue a set of saving bonds from July 15-25 to absorb liquidity. However, the new issue’s size is only Bt30 billion, so more than Bt50 billion in remaining liquidity has nowhere to go.
Although most investment may head for the fixed-income funds in the market, we expect some to move into the stock market amid the improving economy. Stocks with over 4-per-cent dividend yield could be the target. The dividend yield is close to the coupon rate of the new savings bonds.
Based on our inspection through Bloomberg, here are the following big caps in that range.
Banking: TISCO, KKP, KTB
Energy: PTT, PTTEP
Communications: INTUCH, ADVANC, SAMART
Property: LH, QH, AP, SPALI
The investment strategy is to let profit run. The SET is expected to improve this week on liquidity in the country and from abroad. The SET is expected to test 1,530-1,550 points by month’s end.
Focus on big caps with high dividends as they could be the target of such excess liquidity.