The Stock Exchange of Thailand (SET) Index has been clouded by a series of negative factors including the Map Ta Phut legal case, continued foreign selling, the Vietnamese dong's devaluation and persistently high levels of public debt in several countries. Yet these factors have been absorbed to some extent, as reflected in falling share prices over the past two months. The market has dropped more than 7 per cent in that period, bringing its price-to-earnings ratio (P/E) down from 14 times to 13 times. Foreign net selling topped Bt26 billion in the period. As such, the downside is limited. The main resistance level will come when P/E drops to 12 times, or the index falls to 650 points. However, those are worst-case scenarios.
During this period, investors are advised to accumulate stock when the index hits 690. Attractive stocks with high potential to outperform the market in December and January include: stocks with high dividend yields, mostly in the property and construction-material sectors, which naturally show low P/Es (outstanding stocks are Thai Metal Trade, Dynasty Ceramic, Supali, SC Asset, Ticon Property Fund and Samui Airport Property Fund); stocks that typically outperform the market in December and January (based on data dating back to 1990, these stocks include PTT, Minor International, Makro and Kasikornbank); and stocks that stand to benefit from the SET50 recalculation next year, in which MBK, Cal-Comp Electronics and Italian-Thai Development might be replaced by True, Bangchak Petroleum and Quality Houses.
History shows there is a 90-per-cent chance of new inclusions yielding 7 per cent in the weeks ahead of their actual inclusion. Of these, Bangchak is the most noteworthy. It is expected to offer a dividend yield of more than 10 per cent, with an expected 2009 dividend of Bt2 per share.
When the SET Index hovers near 690 points, it represents an opportunity for accumulation with a focus on stocks in the three groups listed above.
Last week's volatility was partly due to the long holidays. But a major contributor was the strengthening of the US dollar, which brought down the prices of risk assets such as oil, gold and stocks. Due to a decline in US unemployment to 10 per cent in November, investors feared the US Federal Reserve could raise interest rates faster than expected. The downgrade of Greece's credit rating contributed to the thin trading volume.
The impacts of these events should be short-lived, however. The Fed is not likely to raise rates any time soon, as reflected in Chairman Ben Bernanke's affirmation that the low-rate environment would continue for a while. Meanwhile, Asian rates could be hiked before the US takes action. The dollar could then weaken against Asian currencies, which would lead to inflows to Asian markets. We're positive on the Asian markets' outlook, and have revised our SET Index target for next year from 765 to 830 points.
Despite the rosy outlook, investors in Thailand must stay alert. The Thai market's attractiveness is diminished in the eyes of foreign investors, and volatility will remain during the Christmas and New Year holidays. While the suspension of the affected Map Ta Phut projects is good for the environment and in terms of compliance with the law, it is doing damage to numerous private companies. Given the lengthy period required to review the projects, these companies are pressing the government to devise a mechanism that will render operation of the projects legal in the meantime.
Meanwhile, political conflicts might intensify after the King's birthday. In January, the Supreme Court will rule on the Bt76-billion asset-foreclosure case against former prime minister Thaksin Shinawatra, and there is a chance the red shirts will beef up protests near the ruling date.
On the bright side, the market should get some support from the "January effect" and stocks' strong fundamentals.
Investors are advised to unload speculative stocks and wait for clearer political conditions. In the short term, Quality Houses, Preuksa Real Estate, Central Plaza Hotel and Thai Stanly Electric are recommended on expectation that their financial results in the fourth quarter of 2009 and first quarter of 2010 will show huge improvements. PTT Exploration and Production is another attractive stock, as oil prices are near the point of rebounding.
Siam City Research Institute
This week the SET should show a clearer direction, as the Federal Open Market Committee is scheduled to hold a meeting tomorrow and Wednesday to discuss the US rate outlook. Last week, there was speculation the US Federal Reserve could raise rates sooner than the third quarter of next year, further strengthening the dollar, which has gained 1.5 per cent against major currencies in the past two weeks. Global stock markets went into a tailspin as a result.
We expect US rates to stay low for now, despite the fact that the November unemployment rate declined to 10 per cent, from 10.2 per cent in October. Fed Chairman Ben Bernanke said recently that the US economic recovery remained fragile; markets assumed the Fed would maintain low rates for some time.
We believe the dollar could weaken this week, and that the SET could rise to 720 points. The dollar could weaken 3.4 per cent based on the Bloomberg Consensus, which estimates that the greenback could weaken to 1.52 per euro in the first quarter of 2010, compared to 1.47 at present.
The expected depreciation of the dollar will likely spur speculation in gold and oil this week. Gold futures for February delivery stood at US$1,120 (Bt37,105) per ounce, while oil futures for March delivery were at $74 per barrel. Large numbers of speculative transactions from hedge funds are expected in the last trading week before Christmas, and US weekly oil reserves will also affect price movements. In Thailand, key figures to be released include November export figures, which could increase as much as 22 per cent year on year, in pace with increasing global demand.
This week, investors looking for short-term gains should enter the market when the SET Index is in the range of 695 to 703 points, and leave when it falls to 688. Recommended stocks: Quality Houses, Minor International, Tipco Asphalt, PTT Exploration and Production and Tata Steel. For medium- and long-term gains, buy high-dividend stocks like Thai Metal Trade, Tirathai, Thai Plaspac, Makro, CP All and Big C Supercentre.