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Short-term outflow likely to continue

The United States has gone in the opposite direction to Thailand in terms of monetary policy, reflecting the different economic situations of the two countries.

The US Federal Reserve announced a reduction of its monthly bond purchases by US$10 billion (Bt326 billion) on December 18 after a meeting of the Federal Open Market Committee, and after the Bank of Thailand's Monetary Policy Committee cut its key rate from 2.50 per cent to 2.25 per cent on November 27.

The US economy is expected to get stronger, leading to less demand for monetary easing. However, Thailand needs lower interest rates to prop up its weakening economy. As a result, the baht has tended to weaken against the US dollar.

All of this has accelerated the flow of short-term capital out of the Stock Exchange of Thailand, which has seen such outflows for a while now. Since February 5, net foreign sales of Thai stocks have exceeded Bt207 billion. Therefore, it is quite possible we will see net selling of Thai stocks early in the new year.

If the political conflicts continue into the first quarter of 2014, that will heighten risks for the Thai bourse and listed companies' earnings forecasts. Listed companies' net profits are expected to reach Bt911 billion (earnings per share of Bt104.57 in 2014, up 13.26 per cent from Bt804 billion (EPS@Bt92.33) in 2013. This growth is around the regional average in Asia.

Based on a study several years back, the first quarter always has the highest base of net profit. If the political situation affects the performance next quarter, there is a high possibility of a cut in earnings forecasts.

During this period, investors may hold equities at 30-40 per cent of investment portfolios. Equity holding may be raised to about 50 per cent if the SET Index stays no higher than 1,340 points. If the index is at that level at the end of this year, the market price-to-earnings ratio (PER) will stay at 14.5 times.

We believe that at the level, the PER is proper for the Thai bourse, as it is the base of prices traded with stability amid little inflow of foreign capital. At 14.5 times, the Thai stock market provides higher return on investment than one-year 4.5-per-cent-yield bonds (based on one-year bond yield at about 2.37 per cent), close to the average in normal situations.

Focus on stocks with profit growth higher than the average of listed companies at 13.26 per cent. The ICT (information and communications technology) group is expected to see profit growth higher than 31 per cent in 2014 because of the transfer of customers from second- to third-generation cellular technology and a recovery of THCOM (Thaicom).

The food group is expected to record profit growth of about 22 per cent in 2014 after a recovery of the shrimp business and higher livestock prices.

The petrochemical group is expected to register 17-per-cent growth in profit, thanks to higher demand for goods after a global economic recovery.

Stock picks: INTUCH (Shin Corp), DTAC (Total Access Communication), M (MK Restaurant Group), CPF (Charoen Pokphand Foods) and PTTGC (PTT Global Chemical).

Kitpon Pripisankit

Vice president - strategist

Kasikorn Securities

The SET Index continued its retreat last week on concerns over the US Federal Reserve's tapering of its quantitative easing (QE) programme after the December 17-18 meeting of the Federal Open Market Committee. The gauge hit its low at 1,326.01 points (-1.13 per cent week-to-date) before rebounding amid expansion of December's Purchasing Managers' Index (PMI) across the world midweek.

The euro zone's PMI rose to a 31-month record high. However, the SET Index fell again late in the week after the US announcement that it would reduce its monthly asset purchases from US$85 billion to $75 billion (Bt2.4 trillion). This pressured TIP (Thailand, Indonesia and the Philippines) stock markets to underperform other markets across the world. The SET Index also saw volatility resulting from the Democrat Party's considerations on whether to participate in the upcoming election and major activities planned by a key protest group yesterday and today.

This week, the SET Index is expected to move sideways/up on local institutional investors' window dressing amid foreigners' net selling that may slow down. We expect the baht to appreciate in the short term after investors adjust their positions to cope with the US QE tapering for a period. An appreciation of the baht may pressure prices of stocks in the food, transport and electronics groups.

We may see switching to groups with sharp drops in prices in the previous period and/or targets for window dressing. They include commercial banking, ICT (information and communications technology) and tourism.

We suggest cautious speculation, or avoidance of it. Stocks that benefited from depreciation of the baht and see sharp rises in prices may be sold for profit. They include those in the food, transport and electronics groups.

Stock picks: KTB (Krungthai Bank), SCB (Siam Commercial Bank), ADVANC (Advanced Info Service), DTAC (Total Access Communication), CENTEL (Central Plaza Hotel), MINT (Minor International), ERW (The Erawan Group), AAV (Asia Aviation), NOK (Nok Airlines) and SCC (Siam Cement).


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