Foreign investors have been net sellers of Thai stocks continuously after signals for quantitative easing reduction in 2013. Foreign holding of Thai stocks (excluding 7 per cent held by NVDR) have lowered from about 30 per cent to 23 per cent. From now, it’s possible to see foreign capital outflow but at a declining rate.
In the meantime, local institutional investors have turned to play a bigger role as net buyers particularly in one to two past years, directing the SET Index.
Based on local institutional investors’ high holding of Thai stocks and the market corrections, it’s possible to see adjustment of investment portfolios to lower risks by reducing weight in highprice to earnings stocks unusually highly held by local institutional investors and switching to sound-fundamental stocks which are not highly held by local institutional investors and whose prices have dropped sharply.
We prefer KBANK, TCAP, TPIPL, SIRI, ANAN, JWD.
Possible rises in trade wars between the US and other countries spanning from China, Canada, the Europe, Turkey and India could affect Thai exportoriented stocks. However, if the trade wars ease through US negotiations with US trading countries, economies and stock markets across the world will find less pressure.
This week, the SET Index is expectฌed to be under pressure from foreign factors and capital outflow continuously. So, shortterm trading takes relatively high risks.
Accumulating stocks with sound fundamentals and much-lower-than-fair-value prices should lead to longterm returns. Focus on domestic plays that could be safe and have high dividend yield. This week’s stock picks: LH (FV@Bt13.40) and RATCH (FV@Bt61).
At 1,600 points, the SET Index’s earning yield gap (EYG) rose to its 4year high at 5.07 per cent. (The EYG of more than 4.7 per cent usually made the SET Index’s recovery every time in the past four years.) If the SET Index drops to 1,577 points, the EYG will increase to 5.17 per cent, a record high since October 2011. Then, the EYG of over 5.10 per cent was able to jack up the SET Index which made heavy corrections of over 26 per cent during August-October then to 843 points before surging to 1,314 points one year later.
Given Thailand’s sound economic fundamentals, the SET Index is ready to jump if negative external factors ease. We believe local economic factors and attractive valuations will help the SET Index to rebound to its target of 1,898 points in the latter half of this year.
Foreign sales throughout the nine past months have been the heaviest due to negative factors, particularly capital flee from emerging markets. And risk of foreign sales continues to pressure the SET Index.
From 2009 to now, foreign investors usually sold Thai stocks during MayJune of every year with a 70 per cent probability and returned to net buy Thai stocks in July with an 80 per cent probability. Specifically, if foreign sale occurred in May, foreign purchase happens with a 100 per cent probability. Now, foreign holding of Thai stocks is low at 31 per cent, close to its record low in 14 years. If negative external factors ease, stock sale will likely slow down even though foreign investors may not stage a return.
At 1,577 points, longterm investment should be made and additional investment should be made again if the SET Index falls to below 1,650 points. Focus on our monthly picks with high upside: BBL KTB MTC ORI LH AP SPALI QH CPN CPALL BEAUTY BEM KCE HANA IVL.