Market View (March 29-April 2)

This week, the market will see greater volatility, as fund flows will continue on profit-taking.

In the past month, foreign buys exceeded their sales by Bt45 billion, pushing the SET Index up by over 10 per cent. Foreign inflows were obviously the main driver, given that there were no significant changes in market fundamentals during the period.

ASP Research still maintains its earnings growth forecast at 13 per cent in 2010. The higher index boosted the market's price-to-earnings ratio (PER) from 12 to near 14 times. We expect continued inflows, but the amount could be lower. The research team also studied the correlation of the baht to foreign net buys, and found that if the baht strengthened to 32 to the dollar, inflows would top Bt50 billion to Bt55 billion. Minus the net buying of Bt45 billion, another Bt5 billion to Bt10 billion should flow in, which would boost the PER to 14 times. At that rate, the index would stay at 805 points at the end of the first quarter, rising to 830 at the end of the second. However, the market movement will be more volatile and appreciation will be slower, amid profit-taking as the political factor maintains pressure on the market.

Last week, there were a few bomb attacks, while the political rally continued. The uncertain environment tends to increase investors' concerns, particularly after the hefty rise in the index. Investors should closely monitor the protesters' movements, as another mass rally could take place. Meanwhile, the opposition may also obstruct the functioning of the House. It also remains interesting to see how the government will maintain peace, and how coalition parties will react to the protesters' call to dump the Democrat Party.

The market is generally heading up, but corrections are possible amid the political factors. Top picks for now are Sahavirya Steel Industries and Siam Cement Company. Both companies are expected to show outstanding financial results in the first quarter and they should also fully benefit from the economic recovery.

CHAIYAPORN NOMPITAKCHAROEN

Head of research, Bualuang Securities

The SET last Friday declined for a second consecutive day. The bourse ended down 7.68 points at 778.86.

Foreign investors continued to be net buyers last week, while local institutional and retail investors sold down into the market on fears of a downgrade rating for Portugal and gains for the US dollar against the euro. Despite that, we anticipate the market will rebound this week on continued interest of foreign investors and relatively cheaper valuation compared with regional markets. The SET is currently trading at a forward PER and price-to-book value of 10.9x and 1.6x, respectively, with a dividend yield of 4.2 per cent against the 14.2x and 2.0x with a 2.9-per-cent regional average.

As we are close to the end of the first quarter, the strong profitability recovery forecast for the period will build positive sentiment towards the SET. On the technical front, the major resistance is at 820 with a supporting level of 758. Our stock picks for the week are Bangkok Bank, Krung Thai Bank, PTT, IRPC and Thoresen Thai Agencies.

SUKIT UDOMSIRIKUL

Siam City Research Institute

The index this week could move in the range of 770-800 points. Investors should stop-loss if the index falls below 760 points. Mid-cap and laggard stocks could rise thanks to high liquidity, while big caps like those in the petrochemical, refinery and coal industries could see profit-taking.

Globally, the focus is on the March labour figures. There is a consensus that the figures will show an improvement, which would benefit the US markets. Though the unemployment rate could remain at the 9.7 per cent seen in February, the number of jobs should increase to 168,000 in March against a drop of 360,000 in the previous month. Then, market expectation would be higher on listed companies' first-quarter results, particularly those of US companies. Thomson Reuters expect S&P 500 companies will show 36.6-per-cent growth in quarterly earnings. Thai banking stocks would also be in focus as a consequence.

For now, in the short term, there is less worry about the European debt crisis, as the European Union and the International Monetary Fund have agreed to jointly help Greece. This will help reduce Greece's bond-issuance cost and boost its ability to repay loans due in April and May. The US dollar will then weaken and commodities like oil and gold will rise in the short term. However, the European debt crisis is far from over, due to huge public debts and fiscal deficits. This will further pressure the euro throughout 2010.

The Thai market in the past two weeks outperformed regional markets due to significant foreign inflows. This week, the inflow could slow down. Thus, investors should sell big-cap stocks and buy undervalued stocks. Those that will outperform the market are in the construction, retail, automotive and banking sectors.

Highlights this week include Tata Steel, which should benefit from the 26-per-cent year-to-date increase in the price of billet to US$525 (Bt17,000) per tonne. Steel companies that use scrap as raw material will stand to shoulder lower costs. Moreover, demand for steel rod in the next three years should recover thanks to government projects. We expect Tata Steel to show Bt1.8 billion in net profit this year.

Indorama Ventures is another interesting stock with outstanding growth potential, due to the commercial production of its Alpha PET plant and the recovery in the PTA (purified terephthalic acid) industry. Its core profit this year should rise 25 per cent, against 82-per-cent growth in 2009.

Charoen Pokphand Foods will also benefit from higher meat prices, as will the stocks of firms making cheap animal feeds.