The SET has made a riproaring start to the new year, jumping 2.1 per cent to a new alltime high of 1,791 in the first two trading days.
The latest leg of the rally has been driven by domestic institutional buying of Bt5.6 bn and foreign buying of Bt1.6 bn. We believe the market’s strong momentum will continue in first half 2018 despite various headwinds (alltime high valuations, US Fed balance sheet reduction, rising global interest rates and increasing geopolitical instability in North Asia and Mideast).
Rising commodity prices (particularly oil and coal), the current account surplus, new economic stimulus packages and ultimately, progress on a general election and EEC/ infra project rollout should offset these factors and push the SET index higher.
If forward P/E can be maintained at the 15.5x level, then we see no reason why the SET cannot breach the 1850 pts level by midyear.
However, once the positive impact from the low base effect for corporate earnings/ tourist arrivals, and news flow on the general election has run its course, we expect investors to start turning more cautious – particularly as the gap between Bank of Thailand and US Fed policy rates widens. Also the prospects of a unified civilian government look rather bleak after a yearend election. Combined with a potential pullback in commodity prices from peak levels we expect the SET to end the year at 1810 pts – or 15x forward P/E.
We remain overweight on the upstream energy, banking and property sectors. Our top picks include 2017 laggards such as SCB, BAY, SCC, LH, PSH and QH. We also like PTTEP whose share price has risen only 15 per cent since midJune 2017, vastly underperforming the 48 per cent gain in Brent crude oil prices in the same period.
We could also see “upcountry” retail stocks get a shortterm boost from the Cabinet’s recent approval of a new round of stimulus measures aimed at helping lowincome houseฌholds as well as the rise in consumer confidence to a 3year high. In addition retailers could benฌefit from wealth effect of the stock market rally and a proposed hike of Bt215 in the minimum wage (to be decided on January 15). Potential beneficiaries of these factors include CPALL, BJC, GLOBAL, HMPRO, M and ROBINS.
Foreign capital continues flowing into the Asian capital markets. From the beginning of this year, the baht came second in its depreciation against the US dollar in Asia. It’s in line with our view that it’s highly likely for the BOT to lessen its intervention in the baht this year and the Thai currency may appreciate more against the US dollar and other currencies.
The baht appreciation and global crude price’s new high were cited for the SET Index’s alltime high, led by blue chips in SET50. Meanwhile, we see investors can continue to hold small and mid caps. Now, the ratio of forฌward PE of SET compared to forward PE of SET50 has fallen to a fouryear low.
Investment strategy: Alltime high of the SET Index could be technically positive factor. We suggest to hold stocks to let profit run in the short term.
Property Group with attractive dividend: AP, LH, QH, SIRI
Communications Group with gains from state relaxation: ADVANC, TRUE
Stocks with sound fundamentals, ones among the most laggards and limited downside risks: CK, TU
Small caps: JMT, PRM
Refineries with gains from baht appreciation, high crude price and seasonal effect of gross refining margin: BCP, IRPC, SPRC
Retail Group with shortterm gains from increase in minimum wage nationwide, particularly retails with grassroots people as customers: GLOBAL, ROBINS, SINGER, TNP.