SET remains volatile as political risk shifts from courts to the streets

Economy May 12, 2014 00:00

By Therdsak Thaveeteeratham

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The SET Index went down amid volatility last week. It fell from above 1,420 points to below 1,380 because of the effects of political problems.

The Constitutional Court dismissed the caretaker prime minister, Yingluck Shinawatra, and nine Cabinet ministers. The National Anti-Corruption Commission also indicted Yingluck for her alleged role in the failed rice-pledging scheme and referred the case to the Senate. 
The index was also pressured by foreign investors’ sales and a price-to-earnings ratio (PER) of 15.2 times (at above 1,420 points).
This week, political factors will continue to pressure the Stock Exchange of Thailand. The issue now is playing out on the streets rather than the courts, and this needs close monitoring. Both the People’s Democratic Reform Committee and the United Front for Democracy against Dictatorship will hold big gatherings, which raises the chance of violence. This will be a major risk to pressure the SET Index this week.
As of May 8, most companies in the three main stock groups, energy-petrochemical, commercial banks, and communications, had announced their first-quarter financial performance. Those that have not yet done so are required to make their announcements this week. These three groups’ combined profit accounts for about 60 per cent of the total in the stock market. 
Commercial banks’ first-quarter profits dropped 1 per cent year on year. The communication group’s profits fell 1.1 per cent. Energy-petrochemical’s first-quarter profits plummeted by more than 30 per cent on reduced spreads in aromatics, stock losses, forex-loss realisation, and drops in refining margins. 
Based on these figures, there now is a chance for cuts in listed companies’ net-profit forecasts. The cuts may be limited to no more than 2-3 per cent, as ASP Research has cut its estimates gradually, taking a conservative approach. This year’s earnings-per-share average is currently projected at Bt100.96, with 12.24-per-cent growth year on year.
In terms of fund flows, foreign investors were net accumulative buyers of Thai stocks totalling Bt30.3 billion from February 27 to May 8. This rebound is expected to be short-term return after heavy sales from the middle of 2013 to February 2014. Net purchases in this round may not take place for a long period, as they did from 2009 to mid-2013, because of changes in the economic mechanism. The US and European economies are consistently recovering, while Thailand is facing an economic slowdown. The yield gap of US Treasury and Thai bonds is narrower as a result of the Monetary Policy Committee’s cut in the Bank of Thailand’s policy interest rate cut. 
There could be thinner buying from foreign capital with periodic profit-taking. This could prompt a gradual fall in the Thai stock market’s current PER.
This week, go with global plays. Stock pick: PTT Global Chemical (PTTGC; fair value Bt87). Both its financial performance and stock price are expected to bottom out in 2014. There could be a rebound for the rest of the year.
Chaiyaporn Nompitakcharoen
Head of Individual Client Research Group
Bualuang Securities 
The Thai stock market dropped 3.35 per cent week on week on concern of violence resulting from the cases involving the caretaker prime minister. The secretary-general of the People’s Democratic Reform Committee called a final demonstration to end the political crisis, while the government supporters’ side also called for demonstrations near Bangkok. 
I’m a positive-thinking man. I believe that political crises should be solved by diplomatic means. I have never thought that political crisis in Thailand could develop into such a serious condition as happened in Egypt. 
I take the view that the Stock Exchange of Thailand is in a volatile period of rising, which offers opportunity for trades. Even when it is affected by political risk, the SET performs well among its peers. Asean stock markets have shown very impressive performance year-to-date. With its vast financial liquidity, the SET tends to move in a range rather than a sharp fall. 
Our indicators suggest that the SET Index should recover this week to 1,410 points in the short term. So I’m on the “buy” side.
Our picks are BANPU, ADVANC (Advanced Info Service), SCB (Siam Commercial Bank), SAMART, SPALI (Supalai), and BLA (Bangkok Life Assurance).