SET correction based on sound fundamentals.
Executive Vice President / Research
Asia Plus Securities
Last week, stock markets across the world made corrections. The US Dow Jones Industrial Average sank 9 per cent from February 2, while the SET Index fell only 2.7 per cent, the smallest drop compared to the key exchanges in the West and Asia. Moreover, the SET Index dropped sharply at the opening but rebounded later, reflecting local investors' support as key to its rally.
We don't think concerns that the Fed will raise the rates faster than expected will cause a sell-off in US equities because the planned increases have been stated before and expected. Rather, the upward trend of US rates is due to the stronger US economy, which could be positive for stock markets in the long term.
Therefore, we believe that sharp correction suggests investors have been simply taking out profit after an intense market rally earlier.
Given Thailand's positive factors, such as its economic recovery and the strong earnings performance of Thai listed companies, we expect the SET Index to rebound after this short-term market correction.
Strategically, we suggest to gradually accumulate stocks. Stock picks: industrial estates - AMATA , WHA for gains from investment in the EEC; stocks with high dividend yield - SIRI, SC & INTUCH.
US nosedive need not be followed in Thailand
In the past 10 years, the US stock market made seven corrections in a range of 5.7-18.0 per cent or 11.5 per cent on average after market rallies. Therefore, the Dow Jones Industrial Average will likely find limited downside risks after its plunge of over 10 per cent in the past nine days. The Dow Jones is expected to fall further in a range of 6-8 per cent, or about 1,400-1,900 points.
We see the US market corrections from profit-taking after a market rally for 10 consecutive months, while expecting repurchase, given the limited downside.
The US market has started to see positive sentiment, given the US Senate's consideration on the drafted US budget, less market panic and lower inflation expectations which reflect less possibility for the Fed's faster-than-expected interest rate increase.
Thailand may not need to follow the US plunges as the SET Index has a specific positive factor – the NLA's approval of the drafted bill on the EEC which could prompt positive response from the stock market, particularly in the investment-oriented groups like industrial estates, banks and construction firms. Besides, a greater amount of foreign capital is expected to flow into Thailand from now on. Next week will be the beginning of earnings performance announcements by 500 companies in the real estate sector. Several companies are expected to report growth QoQ and YoY.
If Thailand's 4Q17 GDP growth, which will be announced on February 20, comes at 4.7 per cent as expected, markets will give a positive response.