However, the government's planned investments in mega-infrastructure projects will restore confidence if the plan takes off by the second quarter, Bualuang Securities executive vice-president Sumek Chantrasuriyarat said yesterday.

"Foreign investors' confidence was badly shaken, and it won't come back in the short term. Some of those who withdrew from the market on Tuesday will probably stay away from the Thai market. What's happening for sure is they're underweighting their investment in the Thai stock market for at least three months," he said.

A Bualuang Securities analysis shows that if the government's planned investment starts, then the private sector will follow, and that would help drive the Stock Exchange of Thailand Index up to 680-720 next year. The worst-case scenario puts the index at 660 while the best case sees it at 800.

Assuming the mega-projects go on stream, Bualuang recommends three stocks for investment - Kasikornbank (Kbank), Siam Commercial Bank (SCB) and Krung Thai Bank (KTB).

As Kasikornbank is the leader in SME lending, which promises bright business prospects over the next few years, the bank should post loan growth of 8-10 per cent against the industry average of 7-8 per cent.

Also, Kasikornbank has already set aside extra provisions to support the loan growth.

Siam Commercial Bank has developed a full range of products for retail consumers. Its home-loan portfolio is second in size only to the Government Housing Bank. State-run Krung Thai Bank is the proxy for the government's mega-projects, though there's some risk that the bank may need to set aside Bt5 billion-Bt6 billion for loan-loss reserves.

The securities firm set target prices for Kasikornbank and Siam Commercial Bank at Bt81 and Bt78 respectively.

Apart from the interest-income growth that the banking industry will enjoy from the government's infrastructure projects, Bualuang Securities believes that banks will benefit from an expanded fee-income base, including sales of insurance and mutual funds. The ratio of loan to fee income should move from 90:10 to 80:20 in the next few years.

The firm warned that the securities of TMB Bank, Bank of Ayudhya and Krung Thai Bank might be in jeopardy if they have to bolster reserves to meet the Bank of Thailand's requirements.

Sumek said the government might have to resort to mergers and acquisitions for TMB Bank as the Finance Ministry cannot afford to inject more funds in it in case the bank needs a capital increase.

Now that the criteria for the second round of bidding by independent power producers have become clearer, electricity stocks could face an upside of 10-20 per cent from current prices, which have already advanced 30-50 per cent since the middle of this year, Bualuang Securities analyst Thanatthep Chantarakarn said.

"The announcement of bidding in March and April will be another key lift to prices of stocks in this sector," he said.

Bualuang recommends a "buy" on Banpu and Electricity Generating (Egcomp) as they look to be strong bidders. Also, both companies are potential bidders for power projects in Laos and the Philippines.

Excluding the new projects to come from the bidding, the securities house set its price targets for Banpu and Egcomp at Bt198 and Bt102, respectively.

Although the investment projects expect to break ground next year, contractors are unlikely to realise any profit in the early years. The firm recommends a "buy" on Ch Karnchang with the target price of Bt12.3.

Bualuang forecasts that the industrial estate sector will be driven by the petrochemical business to grow at least 14 per cent next year. It feels Hemraj Land and Development and Rojana Industrial Park will benefit if Honda gets the green light from the government to produce small eco-cars.

Energy and refinery stocks are favourites for investment next quarter as oil consumption will likely increase in January and February.

Bualuang is underweight in telecommunications and securities stocks. Only Samart I-Mobile can survive as it doesn't get involved in political issues or price wars.

Securities firms, including Phatra Securities, which forge alliances with foreign partners are also good picks.

The 'January effect', when foreign investors pile into shares during the start of the year, was ruled out by Paiboon Nalinthrangkurn, deputy managing director of Tisco Securities.

The broker also cut its SET Index target for 2007 by 100 points from 880 to 780.

"Many stock markets in the world set all time highs this year, but the Thai stock market will suffer from the government's measure. A buying spree won't be seen soon and some funds will take up to six months to come back," he said.

However, if the central bank drops its wait-and-see stance and lowers its key policy rate at its January 17 meeting, the move would propel the SET Index to 700 points, he said.

Piyarat Setthasiriphaiboon

The Nation