The Stock Exchange of Thailand is the laggard among regional peers, gaining by only 2-3 per cent year-to-date. In contrast, Singapore’s Straits Times Index rose by more than 10 per cent during the same period.
Meanwhile, the Philippine market gained 14-15 per cent, while the Indonesian market was up 9-10 per cent.
Our southern neighbour Malaysia’s stock market registered an increase of 8-9 per cent from the end of last year.
So far this year, foreign investors have bought only around Bt9 billion net of Thai shares. This is because of some small weighting of the Thai shares in emerging-market funds or Asian funds.
Setting aside Singapore as a developed market, economic growth among regional emerging Asian peers is stronger than in Thailand. This year, DBS forecasts growth of Thai gross domestic product at only 3.4 per cent compared with Malaysia’s 5.0 per cent, Indonesia’s 5.1 per cent, Vietnam’s 6.3 per cent, and the Philippines’ 6.4 per cent.
News on export growth of 13.2 per cent in May from the Commerce Ministry has certainly brightened the outlook for the Thai economy this year.
The improving economic sentiment may put the SET back on investors’ radar as a laggard market.
However, not everything is rosy. The recent dip in global oil prices will drag the performance of the heavily weighted Thai energy stocks. We believe the market will likely continue to move sideways in the near term. The key turning point could be the accelerating export growth in June, which could lead to a GDP growth upgrade and increase investors’ confidence.
Weak crude-oil prices and tepid upcountry consumption during the April-June period are likely to result in disappointing second-quarter results for many SET-listed companies. Subsequently, the Stock Exchange of Thailand looks poised for extended lacklustre performance over the next few weeks.
On the plus side, near-term downside risk should be cushioned by data showing that Thailand’s exports jumped by 13.2 per cent year on year in May, the highest rate in 52 months. On a year-to-date basis, exports are up 7.2 per cent year on year, in line with Tisco Economic Strategy Unit’s full-year forecast of 7.0-per-cent export growth.
We also maintain our long-term bullish stance given that it appears our earlier forecast of an agricultural recovery is finally being realised. However, we think investors should add more defensive/high-yielding stocks to their portfolios ahead of 2Q17 results before adopting a more bullish strategy in September.
Although the SET has recovered 44 points or 3 per cent since its May low, if crude-oil prices remain below US$50 a barrel during June, we anticipate 2Q losses for listed energy/petrochemical companies. Furthermore, the early start of the rainy season and floods risk denting consumer spending and tourism.
Coupled with their 2Q16 high base, commerce companies are likely to report negative same-store sales growth. Banks could fare better in terms of earnings but NPL (non-performing loan) formation may not have peaked (just yet). Both property and telecoms are also unlikely to achieve last year’s high-base earnings. Overall, we expect SET 2Q17 EPS (earnings per share) to drop sharply year on year and quarter on quarter.
However, the market outlook in the second half of 2017 appears much brighter. We expect a bumper harvest season for rice farmers, and, combined with a new stimulus package as well as the end of the royal cremation ceremony in October, Thailand could see a broad-based consumption recovery. Public spending on infrastructure projects will likely kick off in 4Q17 and the end of the mourning period should trigger an uptick in media spending.
We rebalanced our model portfolio to include more utility and dividend plays to counter a potential SET downturn. Subsequently, we added INTUCH (Intouch Holdings), DIF (Digital Telecommunications Infrastructure Fund), GLOW (Glow Energy), EGCO (Electricity Generating) and AP (Thailand) to our top-picks list.