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With no new factors to boost the SET, natural correction is likely

Therdsak Thaveeteeratham Executive vice president for research Asia Plus Securities THE SET Index is going into a correction but probably not at a sharp level. Since May 22, when the SET Index was at 1,405.21 points and the National Council for Peace and Order (NCPO) took control of the country, the SET has surged more than 10 per cent to a record 1,548.16, welcoming lower risk of political violence.

The market price to earnings (P/E) ratio also rose to above 16 times, higher than normal, with a risk of market corrections. Last week, the SET dropped below 1,500 without any negative pressure. Such a correction is natural after stock prices rise for a period and P/E becomes expensive. Interesting issues this week are as follows:

Politics: The National Legislative Assembly is the second phase of the roadmap. Mid-month is expected to see the formation of the ad hoc government. After that, the constitution will be drafted. The National Reform Council will be appointed and also a committee for drafting the constitution. The constitution is expected to be endorsed by His Majesty the King in the middle of next month. The election will likely follow late next year. The elected government is expected in late 2015 or early 2016. Such fast progress is positive for the stock market. Stock prices have already factored in such progress.

Funds flows: In one month, foreign investors will likely buy and switch to selling stocks, given no incentives for foreign capital to flow into the stock market as happened from 2009-14. Money injection by central banks in countries, particularly the US, is lessening significantly, while several parties are starting to expect rates to rise.

Asian economic growth has started to slow. Thailand's 2014 GDP growth forecast has been cut to only 2 per cent, lower than the global average. Local institutional investors have accumulated since the fourth quarter of last year more than Bt150 billion at market prices. Therefore, at high returns on investment, there remains a bigger chance for their sales than for buys.

With no new positive factors in politics, no timing for foreign investors to net buy in a new round and the upper edge of the market's P/E, the SET is expected to make natural corrections. If there is none of the factors to pressure the stock market, sharp corrections are not expected.

At 1,472, the P/E of 15 times at year-end could be the first support level. A safe portfolio is suggested for corrections. Pick stocks with strong fundamentals and consistent dividends.

Stock picks: ASK (fair value @ Bt23.50), BECL (@Bt45), INTUCH (@Bt109) and PYLON (@Bt8.6).

Chaiyaporn Nompitakcharoen

Head of individual client research

Bualuang Securities

The SET lost 3.2 per cent last week on limited upside. The business sentiment and consumer confidence indexes started their recovery in June. The property sector showed presales soaring from the first quarter. The SET has gained almost 10 per cent after the coup in May.

In 2Q14, the stock market appears to reflect incoming positive improvement in the future. The first leg of the stock market rally has been attributed to constructive expectation but the second leg needs earnings to confirm. The provisional government will likely be set up soon to post supportive drivers for economic growth.

The market rally may have a temporary pause due to undemanding valuation relative to historic data. We believe that the SET should be in a trading mode. Our stock picks are ADVANC, DTAC, PSL, TTA, SF and THREL.

Kitpon Pripisankit

Equity analyst and strategist

Kasikorn Securities

The SET Index last week dived 2.83 per cent or 43.65 points due to the slowdown of capital and lack of new positive factors. Such a drop was in line with the global stock market, which was concerned about the Fed's likely move.

The Fed may raise the rate faster than expected after US economic figures signalled a strong recovery. Stock markets were also worried about deflation in the euro-zone and some debt default by Argentina for the second time in 12 months, prompting investors to sell or reduce risky assets.

We expect the stock market to see a chance for correction to ease the overheating after stock prices factored in most of the good news. The performance of stocks in several groups like tourism, airlines, automobiles and energy may disappoint investors.

The SET is expected to move in a range of 1,510-1,470. Moving up beyond 1,500 could be a chance to sell some stocks to raise cash on hand for buying attractive stocks when the SET drops.

Our investment strategy is to speculate short term with a stop loss or a wait for corrections. We see the SET testing 1,470 as chance to buy for speculation.

Stock picks: ADVANC, TICON, CPF and SAT. Small caps for speculation: AQUA, HOTPOT, PRANDA and TPOLY.


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