About Bt133 billion in foreign capital, which has flown into the Thai bourse since February 15, was a key factor in driving up the SET Index swiftly by 21.5 per cent from 1,276 points to 1,550 points. The market price to earnings ratio (PER)
Such concerns were the possibility of the Fed raising its interest rate or the stability of the economic recovery. As a result, the SET Index could not surpass 1,550 points and dropped rapidly last week. With no new positive factors, there is a risk of likely foreign sales.
From February 15 to June 8, when the SET Index rose to above 1,450 points (purchase at lower costs than the current SET Index), net accumulative buy of Thai stocks totalled Bt42.8 billion. It is believed that the SET Index could fall further, however, at a lower level than last week.
The technical support stays at 1,420 points and the resistance stands at 1,500 points.
It’s believed that the SET Index at 1,450 points is attractive for investors to gradually accumulate stocks with sound fundamentals in a new round as it prompts the earning yield gap to be higher than 4.75 per cent, a satisfactory level in the current environment.
At 1,450 points, the market PER at the year-end is 16.11 points and will fall to 14.8 times next year, and this is proper for stock accumulation for long-term investment. With limited market upside, focus on stocks with high accumulative dividend yield and good earnings performance for the latter half of this year.
MCS (fair value@Bt17.19): At the current price, dividend yield stays at higher than 6 per cent and 3Q16 profitability stands out with no record of loss from hedging like in 2Q16;
ASK (FV @Bt27.50): Profit could be driven up from higher demand for trucks and wider interest differential from high-cost, long-term debentures due for redemption and that prompts lower financing cost. Its dividend yield, at the current price, stays at 7.4 per cent;
PS (FV @Bt38): The dividend policy has been changed from payment at 33-35 per cent of net profit to 50 per cent of net profit. At the current price, its dividend yield stands at 7.4 per cent.
Investors who take higher risks may pick growth stocks with positive factors like AUCT (FV @Bt12.00). Its estimated profit will grow 67.8 per cent next year due to the rising number of cars in financial institutions’ auctions. The company is expanding its new business – second-hand home cars whose auction fees are higher.
From early September when the SET Index fell on five out of six trading days, the Index has plummeted more than 6 per cent to 1,450 points, which was close to the expected PER of 15.5 times at 1,438 points. At that market PER, the SET Index will likely see a chance for technical rebound in the short term (following 6 per cent technical corrections from its high in few days).
Stocks with possibilities for rebounds and space for short-term speculation are those with heavy short sales and sharp price drops from early September. These stocks are: THAI, ITD, TASCO, CBG, QH, TRUE, GLOBAL, HMPRO, DTAC, PTG, STEC, BLAND, SAWAD, GPSC, CK, IVL, GUNKUL, BCP, ROBINS, BEM, KTB.
Although the SET Index will likely rebound after sharp drops with expected PER of 16.8 times (1,560 points) falling to 15.5 times, it is not proper for long-term investment as it is still higher than the 10-year average by 0.2 standard deviation. Based on the SET Index in the past four years, the proper support level for long-term investment was at the expected PER of 13 times.
Capital outflow remains a major risk to the SET Index although foreign investors continued to be net buyers of Thai stocks worth Bt626 million. (After Brexit on June 28 to the present, foreign investors net-purchased Thai stocks worth Bt95 billion, while net sales were only Bt5 billion.). However, foreign investors started to suffer losses. At their Bt90-billion accumulative purchase after Brexit to now, foreign investors have seen their average cost at 1,508 points. It means that the two-day market drops led to their losses by 3.5 per cent. If the SET Index has not yet rebounded, foreign investors could cut their losses.
Take high caution on this. (From February 15 until now, net purchase was Bt173 billion with average cost at 1,456 points.)
The European Central Bank (ECB) meeting decided to leave its benchmark rate unchanged at zero and deposit rate for commercial banks at minus 0.4 per cent.
Last week, Korea’s central bank also decided to have its benchmark rate unchanged at 1.25 per cent. These provide more space for the Fed to hike its rate and that could lead to volatility in capital movement, particularly from emerging markets to developed markets and from Southeast Asia to Northeast Asia. This will pressure the SET Index to go down again. In the medium term, the SET Index is expected to move down below its PER of 15.5 per cent to 14.8 times or 1,373 points.