Thanawat Patchimkul Head of Research DBS Vickers Securities (Thailand) The Stock Exchange of Thailand was on a wild ride last week on high trading volume. We advise investors to stick with the |fundamentals and look to the longer investment horizon.
Adopting a suitable asset allocation for your own risk appetite will be the key to success in the new world of lower yields and higher volatility.
According to a DBS report, developed markets’ equities are facing heightening risks amid valuation concerns. Geopolitical uncertainties are rising as the US presidential election draws near.
In the fourth quarter of 2016, we are now underweight on equities in developed markets, particularly the United States, Europe and Japan. In contrast, we have raised Asia-Pacific ex-Japan and emerging markets to overweight. We have a neutral stance on fixed income but are overweight on gold.
For the Thai market, our stock picks for October are ANAN (Ananda Development), CPALL, DIF (Digital Telecommunications Infrastructure Fund) and LPH (Ladprao General Hospital).
For yield seekers, we believe the TMB Property Income Plus Fund (TMBPIPF), a mutual fund that invests in property funds and REITs (real-estate investment trusts) in both Thai and foreign markets, may be a feasible investment choice. The fund pays regular dividends to unitholders.
The passing of His Majesty the King should help put an end to the sharp volatility in the Stock Exchange of Thailand that began in September.
Provided that the next two to three months remain relatively calm, we could be back on track for the restoration of civilian rule by the end of next year. Thus our 2017 SET Index target of 1,600 points remains intact despite some downside risks to our EPS (earnings per share) forecasts.
We expect the media, property and tourism-linked sectors to be the most vulnerable to earnings-forecast cuts while energy, telecom and healthcare stocks should be the least affected.
Under what we see as the worst-case scenario, our 2017 SET EPS target could be trimmed by 2.5-3 per cent assuming entertainment is suspended for three months (versus the one-month requirement) and a mourning period of six to nine months for most Thai citizens (vs one year for government officials).
Nonetheless, we prefer to be defensive in the near term and have added BLA (Bangkok Life Assurance) to our top picks list as the insurance sector offers defensive properties against both internal and external shocks.
We also like high-yield stocks such as BH (Bumrungrad Hospital), ADVANC (Advanced Info Service) and INTUCH (Intouch Holdings) as well as SCC (Siam Cement) and selective contractors that will benefit from government infrastructure projects.
Once some near-term headwinds fade, we may start to shift from defensive names to higher-beta ones in our top-picks list.
In our view, banks, tourism, and property/industrial-estate stocks could make a comeback once some of the internal and external risks ease, perhaps by early December.
These risks include a likely US Federal Reserve interest-rate increase in December; the impact of heavy floods in northern and central Thailand, particularly on the tourism, industrial-estate, auto, electronics and property sectors; and the risk of the Organisation of the Petroleum Exporting Countries failing to reach agreement at its next meeting, resulting in a sharp decline in crude-oil prices that could hurt PTT Group companies.
However, given that our 1,600-point SET Index target for 2017 is unchanged, and the market is trading at 13.3 times forward P/E (more than 0.5x below historical forward earnings average). With 14-per-cent upside implied by our target, we think the SET is starting to look more interesting on a 12-month investment horizon.