March 31, 2014 00:00 By Therdsak Thaveeteeratham Exe
The SET Index will continue to see political pressure. The issues to be monitored include scheduled big gatherings of the People's Democratic Reform Committee and United Front for Democracy against Dictatorship, and these heighten risks of confrontation.
The National Anti-Corruption Commission filed a petition on the rice-pledging scheme with no time extension for the caretaker prime minister to prepare her defence. She or her representative is required to state her case to the NACC today. After that, the review process on whether there was wrongdoing will follow.
On the Constitutional Court front, the hottest issue may be some senators’ petition on the prime minister’s status after the Administrative Court ordered her to reinstate the secretary-general of the National Security Council. The court may make it clear whether it will accept the petition.
Meanwhile, there remains no clear progress on the schedule for a new election.
It seems that the prolonged political conflicts will not end within the first half and the economy this year could fall below forecasts. Economists have gradually revised down their 2014 GDP growth estimates. The Bank of Thailand early last week cut its estimate on this year’s expansion to 2.7 per cent. The Fiscal Policy Office slashed its 2014 growth forecast to 2.6 per cent from 4 per cent projected in December. This is its first downward revision in 2014.
ASP Research is also revising down our forecast to 2-2.5 per cent on lower estimates of domestic consumption and private and public investment. Thai listed companies’ 2014 earnings-per-share growth is at downside risk; however, with their operational efficiency, there may be no sharp cut of the EPS growth number. Currently at 12 per cent, it may be around 10 per cent.
The Monetary Policy Committee’s policy-rate cut to 2 per cent prompted one-year bond yield to fall to about 2 per cent, which led to the market earning-yield gap in the current SET Index (market earning Yield less one-year bond yield – the risk premium for capital transfer from the bond market to the stock market) rising to 4.8 per cent, close to the average since 2004. If the SET Index drops to 1,300 points, equivalent to a price-to-earnings ratio of 14 times at the end of March, the gap will increase to 5.14 per cent, which is seen as an attractive return for long-term investors who may purchase stocks. This reflects limited downside risks to the SET Index.
Current investment strategy: Weight on global-recovery or overseas base stocks. Stock picks: IRPC, IVL (Indorama Ventures), STPI.
Head of Individual Client Research Group
The Stock Exchange of Thailand gained 0.62 per cent week on week as trading sentiment gradually moved towards risk-off.
Political conflicts will likely intensify during April given that both the anti-government People’s Democratic Reform Committee and the pro-government United Front of Democracy against Dictatorship plan aggressive steps to win this game.
Lately the Ministry of Finance reduced its economic-growth projection to 2.6 per cent this year compared with the 4 per cent of its earlier projection.
Despite market gains last week, few stocks posted price increases. The implication is that we are moving towards the edge of an upward swing.
Our research team anticipates that first-quarter 2014 earnings for the SET will become awfully negative year on year, as we also predict that the Thai stock market will reach a year-end level of 1,433, pegged forward price-to-earnings ratio of 14 times.
From our perspective, the Thai stock market is struggling with limited upside with a lack of positive news. Therefore, we reduce weighting in the SET for now.
The SET Index plummeted early last week, with a low of 1,341.60 points (down 1.39 per cent week-to-date) on concerns over China’s economic slowdown after HSBC reported March’s purchase managers’ index (preliminary figure) at the lowest level in eight months at 48.1.
Tensions in Ukraine led to US and European sanctions against Russia, which heightened concerns over Russian economic contraction.
The SET Index rebounded in the middle of last week on less concern over China’s and Russia’s economies. The US also reported strong economic figures, with its consumer confidence index at the highest level in six years. The number of applicants for unemployment claims last week was the lowest since November 2013.
Foreign investors and local institutional investors’ net buys helped push up the SET Index sharply last Friday, with last week’s peak at 1,377.88 points.
We expect foreign capital to flow into regional emerging markets after the US economy continues its strength. Markets expect China’s stimulus measures, and the SET Index will likely rise from 1,330-1,370 points to 1,350-1,400 this week. The market may be traded above the forward price-to-earnings ratio of 13 times (1,370 points), if there is no political violence and more likeliness of negotiations.
Investment strategy: We suggest investors who missed the last round of profit-taking take profits when the SET Index rises to 1,400 points and buy back at 1,330 points. Short-term investment focuses on “speculation on individual stocks with limited amount and stop loss every time”.
Speculate on stocks with positive factors such as export and global-recovery stocks.
Stock picks: Food group – CPF (Charoen Pokphand Foods), TUF (Thai Union Frozen Products), CFRESH (Seafresh Industry) and GFPT; electronics group – HANA (Hana Microelectronics) and DELTA (Delta Electronics); energy and petrochemical group – PTT, PTTEP (PTT Exploration and Production), TOP (Thai Oil), PTTGC (PTT Global Chemical) and SCC (The Siam Cement); and stocks with sound fundamentals, low prices and high dividends, including the banking group – BBL (Bangkok Bank), KTB (Krungthai Bank) and SCB (Siam Commercial Bank) – and property group – SPALI (Supalai), PS (Pruksa), AP and TICON (Ticon Industrial Connection).