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SET in waiting mode as political uncertainty continues

The SET Index declined by just 1.4 per cent over the last two weeks, closing at 1,395.2 on May 15, underperforming regional peers, as the MSCI Asia ex-Japan Index rose 2.5 per cent.

Foreign investors and retail investors were net buyers of Bt1.1 billion and Bt619 million, while local institutions conversely were net buyers of Bt3.8 billion. Leading the losses were the consumer-products, agricultural, media, construction and property sectors.

The market is waiting for further developments on the political front as various factions look for ways out of the deadlock after Yingluck Shinawatra was dismissed from her position as caretaker prime minister along with nine Cabinet members for charges related to the transfer of the national-security chief. The remaining 29 Cabinet members lack full authority to function as a government.

Contention remains whether Niwattumrong Boonsongpaisan, who is now acting prime minister, has the authority to move ahead with the election process. The Senate is now the only legislative body that has the vital role of bringing together various stakeholders to agree on an optimal solution.

As political developments remain in disarray, violence seems to have escalated, with both anti- and pro- government groups continuing to make conflicting demands on how the new government should be formed. While the anti-government group proposes the appointment of an interim prime minister, the government supporters insist on a new election.

The market's focus over the next two weeks will be on the issue relating to interim government versus election, with hope for a non-violent resolution. We still recommend that investors accumulate stocks that are politically neutral, including in the electronics sector (KCE, SVI) and those with significant turnarounds in financial performance, including TTA (Thoresen Thai Agencies), PSL (Precious Shipping), CKP (CK Power), RML (Raimon Land) and SC (SC Asset).

Tisco Securities

After five days of consecutive declines, the Stock Exchange of Thailand suddenly reversed course and closed up 21 points or 1.5 per cent on Wednesday amid hopes that the Senate would resolve the political impasse. However, we believe that the market's near-term upside remains limited because of the uncertain political climate and potential for further clashes between the People's Democratic Reform Committee (PDRC) and red shirts rallying in support of the current government.

Meanwhile, the likelihood of the July 20 election being delayed has risen after a meeting between the Election Commission and the caretaker government on holding a new vote was called off due to fresh protests by the PDRC. The move followed a gun and grenade attack last Thursday on a PDRC rally at Democracy Monument that left three people dead and more than 20 injured.

Foreign tourist arrivals dropped 5.8 per cent year on year in the first quarter because of the protracted political conflict, but the latest data show early signs of stabilisation for Thailand's tourism industry. Foreign-tourist arrivals for April slipped by 1.7 per cent year on year to 2.02 million, but that was an improvement from the 8.1 per cent decline in February and 9.4-per-cent dip in March. After seasonal adjustments, however, the number of visitors rose by 7.9 per cent from March, snapping a streak of month-on-month declines since December.

Note that the two hotel stocks under our coverage, MINT (Minor International) and CENTEL (Central Plaza Hotel), reported first-quarter earnings that beat our estimates and market consensus. However, their better-than-expected results were mainly due to strong performances at their Maldives hotels. We maintain our "buy" rating for both stocks, with target prices of Bt27 for MINT and Bt31 for CENTEL.

Meanwhile we reaffirm our view that earnings in the overall market will trough in the first half of this year and stage a recovery in the second half and 2015. For next year we forecast aggregate earnings growth at 13 per cent (15 per cent ex-energy), accelerating from 11 per cent (10 per cent ex-energy) in 2014.

Our key buy ideas are PTTEP (PTT Exploration and Production), SCC (Siam Cement), ADVANC (Advanced Info Service), IVL (Indorama Ventures), HEMRAJ (Hemaraj Land and Development), STEC (Sino-Thai Engineering and Construction), SPALI (Supalai), JAS (Jasmine International), BCP (Bangchak Petroleum) and CPN (Central Pattana).

Research Department

Trinity Securities

On May 15, MSCI announced a new list of stocks for MSCI Thailand. The MSCI Global Standard Index will have a new stock, BH (Bumrungrad Hospital), with no stock excluded. The MSCI Global Small Cap Index will have new stocks, BJCHI (BJC Heavy Industries), MEGA (Mega Lifesciences), NYT (Namyong Terminal) and TTCL (Toyo-Thai Corporation), while excluding BH, GSTEL (G Steel), GRAMMY (GMM Grammy), SITHAI (Srithai Superware) and UMI (Union Mosaic Industry). The new list will take effect in the evening of May 30.

Trinity Securities reveals investment strategies for the new MSCI Thailand lists. Based on a recent study on stocks added to and excluded from MSCI Thailand since 2008, including the MSCI Global Standard Index and the MSCI Global Small Cap Index, these stocks usually undergo significant changes between the announcement date and the effective date. In particular, they provide an 11-per-cent average return above market. After the latest announcement last November, the stocks included into the MSCI Global Standard Index outperformed the market for only one week. We recommend accumulate BH now and sell on May 22.

The new stocks included in the MSCI Global Small Cap Index will outperform consistently until one week after the effective date. Accumulate BJCHI, MEGA and NYT and sell on June 6. All three companies have other positive factors such as inclusion in the SET100 in the next round.

The stocks excluded from the MSCI Global Small Cap Index are found to under-perform the market from the announcement date to the effective date. Average return is about 4 per cent below the market return in the period before the stock prices gradually rise after that.

Avoid or sell GSTEL, GRAMMY, SITHAI and UMI now. TUF's exclusion from the MSCI Global Small Cap in this round is seen as preparation for being included in the MSCI Global Standard Index in the next round. If the TUF (Thai Union Frozen Products) stock price goes down, it is a good opportunity for accumulation.


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