Foreign fund flows key to market support
Foreign fund flows are the only hope to sustain the stock market during the fresh outbreak of Covid-19, as GDP growth and earnings estimates for listed companies are expected to be downgraded if the outbreak continues and the government does not offer any strong economic support, according to Asia Plus Securities (ASP).
ASP Research said over a period of 16 days, the number of cases rose by an average of 212 cases per day, soaring above the rate of 37 cases per day recorded during the initial outbreak from February to mid-May.
Terdsak Taweethiratham, vice-president of ASP, said foreign fund flows will serve as one of the only sources of support for the SET Index.
Despite the spike in Covid-19 infections in Thailand, more foreign funds continue to flow into the Thai stock market than other regional markets. In December, foreign investors reported a net buy of Thai stocks at US$82 million while other exchanges such as South Korea, Indonesia and the Philippines saw net sales of $614 million, $279 million and $171 million, respectively.
However, the Thai stock market is lagging behind when compared to other regional markets, offering room for an uptrend and opportunities for investors to make profits. While most Asian markets rose over the past month, for example, South Korea and Vietnam grew by 11% and 10%, respectively, the Thai stock market only rallied by 3.3%. Sentiment has clearly been affected by the 140% increase in Covid-19 infections reported over past seven days.
Foreign funds will also likely flow into Asian bourses if the Democrats win in the US Senate election on Jan 5 and dominate both the House of Representatives and the Senate thanks to the party's economic policies, which favor Asian markets.
These policies include the tax increase in the US, which will lower profits for US-listed firms in the short term, the economic stimulus package that will weaken the dollar and increase demand for oil, and the focus on the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP).
However, as there will be short-term impacts from the new wave of pandemic, ASP recommends investors focus on low-impact stocks, or high-dividend stocks, such as Sri Trang Gloves (Thailand) (STGT), Advanced Info Service (ADVANC) and Dynasty Ceramic Plc (DCC).
Sorrabhol Virameteekul, senior vice-president at Kasikorn Securities, said the SET Index rebounded in the afternoon trading session yesterday thanks to the rise in market sentiment spurred by the government's decision to implement partial lockdown instead of full lockdown that would have created a heavier blow to the economy.
"Global markets have suffered an average 3-8% decline from the second wave of outbreak," Mr Sorrabhol said.
As the SET Index has already declined by 5%, the strong support line for this round is 1,424 points. If the government decides to implement full national lockdown, the SET Index is expected to plunge further to 1,377 points. He recommends investments in logistics, non-bank and defensive stocks.