The Stock of Exchange of Thailand (SET) remains in consolidation mode, with investors waiting for the release of 2017 fourthquarter GDP data today as well as more finalquarter results by nonfinancial companies.
Tisco’s Economic Strategy Unit expects fourth quarter GDP to expand by 4.3 per cent, resulting in 3.9 per cent economic growth for the full year. It also maintains its GDP growth forecast of 4.1 per cent for 2018 but warns that domestic demand may recover more slowly than what the market expects amid disappointing progress on infrastructure investment.
In fact the Thai market is facing a number of headwinds including rising political tensions due to uncertainty over the election, a slowdown in farm income (thereby raising concerns about purchasing power) and stronger-than-expected US inflation, which could lead to soonerthanexpected US rate hikes. As of last Thursday, foreign investors have sold a net total of Bt39.7 billion of Thai equities year to date, dwarfing the net buys year to date of Bt16.5 billion by local institutions.
Meanwhile the contractor sector could come under pressure after SinoThai Engineering and Construction (STEC) reported an unexpected net loss of Bt1.32 billion in the fourth quarter due to loss provisioning for construction delays of the new parliament building and Phuket airport.
On the positive side, the National Legislative Assembly recently approved the Eastern Economic Corridor bill and we expect this legislation to go into force within the first quarter of this year. Meanwhile the University of the Thai Chamber of Commerce (UTCC) reported that the January consumer confidence index rose to a three-year high thanks to strong export and tourism trends as well as an increase in the minimum wage.
Given our expectations for further market volatility, we recommend investors avoid most of the oil-linked companies and stick with selective banks, hospitals, hotels and property. Our top picks include BBL, KBANK, LH, QH, PSH, BH, BDMS, MINT, CPALL, PTTGC, SCC and TRUE.
The SET Index will underperform stock markets across the world in the short term, given its high valuations and will stay in a range of 1750 to 1850 points next month. Buy on weakness and sell on strength within the range. We pick stocks with high dividend yields such as AP, PSH, SPRC, TOP, IRPC, TISCO, KKP.
1 2017 performance of listed companies will affect revision of estimated net profit of listed companies and market valuation in 2018.
2 Elections in Italy on March 4.
3 If the US bond yield continues to stay at a high level, Thai bourse will see it as constraint for fund flow.
4 Dot plots of the Fed on the March 2021 Federal Open Market Committee meeting. If the Fed insists on three rate hikes this year, the US bond yield may be stable and lower.
5 If the US dollar continues steadily appreciating, that will be positive for commodity prices including Thai energy stocks.
6 If Thai bond yield remains steady, that will sustain Thai bourse as local investors see no incentive to move their capital out of stocks to bonds.
7 If accumulative long positions of hedge funds in crude markets lower, that will be good, which will reflect investors’ closing some positions and that will limit pressure on prices.