Set may rebound from plunge

Therdsak Thaveeteeratham

Senior Vice President of Asia Plus Securities.

The SET index has already responded to negative factors, including economic and political ones, by falling more than 22 per cent over the past two months.

However, corporate earnings have yet to be impacted by such negative factors, and the price-to-earnings ratio of Thai stocks has fallen to 10, lower than the normal fundamental level of 12-14.

Thus local institutional investors have started to buy while net selling by foreign investors has slowed down, and overall trading last week temporarily improved.

The government's six recent stimulus measures, particularly the fuel-excise cut. will slow inflation, which is expected to peak in July.

As for political pressure, investors have to monitor whether the court accepts the two- and three-digit lottery case.

If it does there will be a significant reshuffle in economic ministries. The market is quite sensitive in this factor.

The SET Index this week is expected to hover between 665 and 705 points.

Dividend stocks to watch are Supalai, Samui Airport Property Fund, Thai Metal Trade, Cal-Comp Electronics (Thailand), Advanced Info Service and Kim Eng Securities (Thailand).

We believe political pressure will eventually ease and lift the SET index above 700.

In the meantime, we also see strong support levels in the 600-680 range.

Court cases may drag on with the current government in power, which could boost the stock market to the 680 level.

The ruling People Power party (PPP) may choose to opt for a partial compromise by not seeking to aggressively amend the Constitution, making only changes that are palatable to the opposition, while court cases against the government continue through August with the government remaining in power after a major Cabinet reshuffle.

Investors would prefer this scenario for the month of August.

If Parliament is dissolved, the SET will slip to 650.

A coup in Thailand can never be ruled out, but the chances appear slim as major problems dividing the country are being dealt with at law. A "peaceful" non-violent coup, however, could result in the SET index falling to 620 or lower.

The worst-case scenario imaginable would be clashes between anti-government (People's Alliance for Democracy) and pro-government protesters, which could see the market plunge to the 600 level.

External uncertainties are US equities, energy prices, interest rates and currency.

We recommended buying Kasikornbank, Siam Commercial Bank, Land & Houses, BEC World and Central Patana on higher gains contingent on falling fuel prices and inflation risks.

Sukit Udomsirikul

Assistant Managing Director at Siam City Research Institute

The Thai stock market is expected to be highly volatile this week. A bear market will continue at the Thai bourse.

Factors expected to affect the stock market are as follows:

l The volatility in commodity prices, pressuring the energy sector. Crude Oil and coal prices last week fell 14 and 12 per cent respectively from the year's peak, and this will in the short run hurt energy stocks including PTT, PTT Exploration and Production, Banpu and Lanna Resources.

l The political crisis. We expect a Cabinet reshuffle this week if the court accepts the two- and three-digit lottery case. If this comes to trial, the finance minister, who is involved, will be suspended. The new foreign minister is another post investors will keep an eye on.

l Economic indicators in June. The trade balance is expected to improve, which will boost the baht in the short term.

l The inflation rate in July is expected to be close to a record 10 per cent and to increase further in August to the year's peak, reflecting a new round of price hikes. The economy will start to benefit from the government stimulus measures, especially the excise cut on diesel.

l Product and service price hikes will come as a boon to transportation and food stocks. Bangkok Expressway, Thai Vegetable Oil and Tata Steel (Thailand) will benefit.

l Food, steel and property development are expected to show outstanding earnings in the second quarter.

l Investment strategy for this week is to sell on rebound and buy speculatively in the short run. We recommend Thai Oil, Quality Houses, Preuksa Real Estate, Thai Vegetable Oil and Bangkok Expressway.