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SET expected to suffer more of the volatility seen over past two weeks

The Stock Exchange of Thailand was volatile in the past two weeks.

After reaching an intra-day high of 1,548 points on July 25, the SET Index fell to an intra-day low of 1,487 on August 1 on profit-taking, but recovered to close to 1,500 the same day. The market continued to recover rapidly to close at 1,522 on August 5 as investors snapped up major stocks on weakness.

Most stocks fell, with the exception of healthcare, ICT (information and communications technology), finance, and property funds.

During the two-week period, local retail investors bought Bt12.6 billion (net) worth of stocks. In contrast, local institutions sold Bt5.5 billion, foreign investors sold Bt4.7 billion, and proprietary trading accounts sold Bt2.4 billion. Year-to-date, foreign investors remained net sellers of Thai equities at Bt26.5 billion, which suggests they have room to increase exposure to the Thai market.

The SET will be volatile in the coming months as valuations outpace earnings, which will only recover later this year or perhaps next year. Second-quarter 2014 earnings will generally be soft. There will be an improvement in third-quarter results but it will not be broad-based and will be sluggish in some sectors such as construction contractors and building materials.

However, some exporters, especially electronics manufacturers, will enter the peak season in the third quarter. The property sector will also do well this quarter, in line with improving domestic consumer confidence.

We expect to see clearer signs of an economic and earnings recovery in the final quarter of this year. Expectations of improving economic prospects in the next few years will drive up valuations and prices in the Thai market.

Looking forward, the relatively stable political climate will raise the confidence of foreign investors. The National Council for Peace and Order has been working hard to get the economy up and running and has reported progress in most areas, ranging from economic reforms to investments. The next general election - a concern for some investors - is on track to be held late next year.

Our preferred stocks are Ch Karnchang (CK), Kasikornbank (KBANK), KCE Electronics (KCE), Samart Corporation (SAMART), and Supalai (SPALI).

Research Department

Trinity Securities

Factors that need close monitoring include foreign capital after foreign investors started signalling short-term profit-taking on Thai assets such as fixed-income products or stocks. This situation is in line with our view on foreign capital's high fluctuation for the first half of this month. This could come mainly from external factors, particularly geopolitical risks that continue strengthening the US dollar. It will be a key factor encouraging foreign investors to sell Thai assets to lock currency gains.

If the SET Index goes down to 1,490-1,500 points, investors are recommended to accumulate stocks, given a positive view late this month after Bt43 billion worth of savings bonds reach maturity.

The groups of stocks for which we suggest accumulative buys during market corrections are:

Coal: gain benefits after China uses more coal-fired energy. Stock picks: BANPU, EARTH (Energy Earth).

High-dividend stocks: ASP (Asia Plus Securities), TICON (Ticon Industrial Connection).

Alternative-energy and power-plant groups with low PBV (price by volume): CKP (CK Power), IFEC (Inter Far East Engineering).

Domestic consumption group with likely consistent growth: BJC (Berli Jucker).

Construction-material group with laggard prices: TPIPL (TPI Polene).


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