Rebound seen amid global bearishness
Investors are bearish on the outlook for the world economy as reflected in the falling global bond yield from the mass exit from equities to safe-haven assets.
Last week, the market-implied US policy rates suggested that investors were expecting the Federal Reserve System (Fed) to hold their rates this year and possibly a cut in early 2020.
At its December 2018 meeting, the US Federal Open Market Committee’s dot plot showed a median of 2 rate hikes this year, followed by another one in 2020. The huge gap between the market and central bank’s expectations needs to be narrowed.
During this period, the market will certainly be volatile. Nonetheless, given the over-bearishness, we expect a sharp rebound.
But a more sustainable recovery hinges on two major factors: if the Fed turns more dovish and if the ChinaUS trade talks are successful.
Selective plays on key stocks remain our key recommendation. Real estate investment trusts should benefit from peaking interest rates. – Thanawat Patchimkul, Head of Research, DBS Vickers Securities (Thailand)
Poll a key factor
The Thai stock market has moved with high volatility for the past two weeks, sinking to a low of 1,546 points amid concerns over the possibility of a global recession. However, the Thai bourse rose on the last trading day of 2018, driven by the buying spree from LTFsRMFs.
Last week, the Thai Stock Exchange was off to a bumpy start this year, beset by negative news such as postponement of the Thai national election, the US government shutdown and weakening global purchase managers’ index.
The SET Index is not expected to rebound in January despite likely progress in US-China trade talks. An uptrend in the SET Index may occur when a clearer picture emerges on the election. We estimate the support line at 1,540 points and the resistance line at 1,585 points.
This week’s investment strategy: We see limited downside risks as seen in previous sharp drops. The SET Index is technically targeted at 1,600 points in April if a new election date has been announced. This week, we pick stocks with growth potential or dividend plays to mitigate impact from the slowdown.
Our choices are KKP (good earnings growth prospect and high dividend) and PTG (good earnings growth prospect). BJC and WHA stocks in our portfolio have been sold to cut loss. We prefer to hold BTS (launch of extension and expected dividend payment this month. Its targeted price is revised up to Bt9.90), and CK for brighter business prospects (rise in liquidity this year from auction worth more than Bt300 billion).
l KKP: Technical fair price at Bt69.75
l PTG: Technical fair price at Bt10.00
– Tisco Securities
The SET Index will swing up sideways this week with the support line at 1,550 points and resistance line at 1,6001,620 points. The stock market has been supported by net buy of local institutional investors and rising crude prices. Strategically, we prefer to hold big caps with high dividend (PTT, SCC, ADVANC, BBL, KTB) which have outperformed the market.
Factors for monitoring this week:
1 US-China trade talks in Beijing, January 78. It is the first face-to-face talks after the 90-day halt to new tariffs since December 1. If progress is made, global risk sentiment will improve.
2 The ECs comments on the election schedule and the possibility of an announcement this of a new election date. If it’s certain that the poll will be held in March, it will boost market sentiment.
3 Progress in the US government shutdown. We still view it as pressuring the US dollar and indirectly positive for the baht.
4 Return to discussions on Brexit. The Brexit deal will be voted on by members of parliament in the week beginning January 14.