Monday, November 17, 2008

Thailand's SET-Which way is it headed?


Broker: Bear market could continue

Thanachart boss says SET could sink or soar


Calling a bottom to a bear market is often a fool's game. Even with Thai stocks trading at absurdly cheap valuations, few analysts would be so bold as to say the worst has passed. ''Investing in the current market really requires one to use their own judgment,'' said Suvabha Charoenying, the managing director of Thanachart Securities.

She said the SET index, which closed yesterday at 434.21 points, may fall as low as 300 points or rebound to as much as 500.

The index, off by nearly 50% from the beginning of the year, has Thai stocks trading at a valuation of just six times earnings. Last week, MSCI cut its weightings for Thai stocks to just 2% from its global index, with the blue-chips Siam Cement and Central Pattana both withdrawn from its benchmarks.

But Mrs Suvabha, speaking at an investment seminar yesterday, said the selloff of the past year presented a clear opportunity for investors.

Some 370 stocks out of the nearly 500 in the market now traded under book value, she said.

The refinery Thai Oil was one example. The stock, which closed yesterday at 21.80 baht per share, is trading at a sharp discount from its net asset value of 100 baht per share.

''Investors basically can buy the stock five times cheaper than the construction cost of a refinery,'' Mrs Suvabha said.

Companies focused on the domestic market, including telecoms, the convenience store operator CP All, utilities and some banks all were favoured under the current environment.

Mrs Suvabha noted that despite the global economic tsunami, first-half listed profits still amounted to nearly 400 billion baht, with dividends paid of over 200 billion.

She dismissed assumptions that bond investments always represented lower risks than stocks.

Mortgage-backed securities stood at the centre of the current crisis, Mrs Suvabha said, adding that investors who entered the stock market following Black Monday in 1987 tripled their investments after four years.

Voravan Tarapoom, managing director of BBL Asset Management, said the steady sales of Thai stocks by foreign investors opened the door for a greater role in the market by domestic institutions and retail players.

She said the net asset value of the mutual fund industry totalled 1.5 trillion baht as of October, down 100 billion from the beginning of the year.

Fund portfolios could decline even more if commercial banks move to raise deposits with new promotions, drawing funds from money market and fixed-income funds.

Duangmon Chuengsatiansup, director of the broker-dealer supervision department at the Securities and Exchange Commission, agreed that from a long-term perspective, current market values represent a bargain.

''Siam Cement is trading at [102 baht per share], or equal to the price of one bag of cement. Our market fundamentals are not that bad as prices would suggest,'' she said.

Mrs Duangmon said local brokers and fund managers were themselves financially stable, and that investors should not fear a systemic crisis similar to the one which has devastated the ranks of US and European financial institutions over the past several months.

Charuphan Intararoong, director of the SEC's corporate affairs department, said regulators were monitoring brokers on a daily basis for signs of financial stress.

Securities companies must detail transactions such as securities borrowing and lending activities, margin loan positions and other activity that may affect their capital base.

Mrs Duangmon said the SEC conducted ''stress tests'' to monitor the potential risk faced by local brokers from the global crisis.

Regulators monitored not only changes in the financial position of local intermediaries, but also data from the international markets on interest rate movements, credit default swap prices, fund withdrawals and capital movements.

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