SET Index is not expected to rise and will face limited downside risks this week. The SET Index plunged more than 30 points last week, under pressure from volatile emerging-market currencies as well as concerns over US-China trade war with a possible third round of revenge and retaliation.
This week, the SET Index is forecast to move below 1,700 points due to a lack of support from foreign investments. The situation will continue until the fluctuations of emerging markets’ currencies ease off.
Downside risks of the Thai stock marฌket is limited, given support from listed companies' earnings results. This year's market EPS is estimated at Bt108-Bt109. At the SET Index of 1,680 points, the market PER at yearend will be 15.4-15.5 times – a level which could attract longterm investors to return.
This week will likely see the third round of tariffs on US-Chinese goods, which could pressure stock markets worldwide. More tensions from trade sanctions also worsen countries with current account deficits (Argentina, Turkey, Venezuela, India and Indonesia) and lead to currency volatility and capital fledge from emerging-market countries.
Another impact is the higher production costs for products (especially technology products) in supply chains in countries which face trade sanctions, dragging down US tech stocks.
Thailand is one of the countries with strength in fiscal and monetary stances. The country's current account is in a surplus of 10.8 per cent of GDP. Foreign reserve stays at 1.63 times of external debts. Public debt is low at 42 per cent of GDP and Thai GDP tends to grow. The positives will help the baht moves with limited volatility. However, foreign capital has continued to flee Thai bourse. Year-to-date, foreign investors have been net sellers of Thai stocks worth more than Bt200 billion.
We prefer stocks with sound fundamentals, high dividend yields. Expect outstanding results in 2H18 and low downside risks as seen from previous sharp price corrections.
Stock picks: LPN (FV@Bt13.50 and; SC (FV@Bt5.24). Both have dividend yield of over 6 per cent.