We believe the political uncertainties overhanging the Thai market have now been removed.
Looking forward, the market will be focusing on the list of new Cabinet members and stimulus measures to boost the economy in the second half of the year. Note that the Thai economy had a weak start to the year, expanding by 2.8 per cent in the first quarter of 2019 compared to a rise of 3.6 per cent in 4Q18, and the slowest pace in four years. Accordingly, the National Economic and Social Development Board (NESDB) has cut the GDP growth forecast for fiscal year 2019 to 3.3-3.8 per cent, down from 3.5-4.5 per cent forecast in February.
We are maintaining “neutral” for Thailand despite the headwinds from global trade tensions. We recommend that investors accumulate stocks with solid fundamentals, reasonable valuation and decent yields. We still like the Commerce and Finance sectors, which should benefit as domestic consumption recovers. We are upgrading the Industrial Property sector to Overweight, as it should be a prime beneficiary of the trade war.
Head of Research
DBS Vickers Securities (Thailand)
INDEX TO GO SIDEWAYS
We project the SET Index to swing in a range of 1,580-1,680 points as the 1,600-point level has now been sustained, which is a relatively cheap valuation. The Thai stock market’s earnings yield gap (a difference between yield of the Thai stock market and yield of the US government bond) has stood above its long-term average. The SET Index’s fair level, which could prompt the long-term earnings yield gap, is 1,660 points. We expect the SET Index to go sideways more at this level. Strategically, investors who invested at lower than 1,620 points may hold stocks and gradually take profit if the index rise to the resistance level at 1,680 points.
Amid the prolonged trade war, we expect domestic plays such as communications, retail and construction to outperform in the short term. Top picks include ADVANC, CPALL, and CK.
Meanwhile, cyclical stocks may rebound in the next periods if positive surprises occur this month. We like PTTEP, PTTGC, III.
High-dividend stocks are also attractive as the Thai bourse’s dividend yield gap hits its record high since late 2016. This group still sees a local positive factor. Some capital may move to this group from fixed income, which will be imposed a higher tax rate. We like big caps with estimated dividend yield of more than 3 per cent and interval dividend payment in SETHD, such as PTT, ADVANC, SCC, SCB, BBL, PTTGC and LH.