The handling of the pandemic remains a worry and with a looming lockdown expected to be announced today, the Thai stock market took a tumble.
The lockdown is expected to negatively affect the profits of four top sectors, namely automobiles, media and publications, transport and logistics, and construction.
The SET Index fell 32.93 points yesterday to close at 1,543.67, in trade worth 111 billion baht.
The prime minister convened a meeting with the pandemic control committee today to assess the situation and seek solutions. They are expected to conjure up more control measures before proposing them to the cabinet next week, according to Therdsak Thaveeteeratham, executive vice-president at Asia Plus Securities (ASPS).
ASPS said the pandemic is hindering economic growth, which is expected to decline in the third quarter from the previous quarter this year and the second quarter last year, when listed firms' earnings experienced the steepest fall.
If the country goes into a lockdown again, the four sectors are expected to suffer the heaviest blow.
In addition, the profits of energy stocks could drop if Opec increases production this quarter, pressured by oil prices hitting a three-year high at the beginning of the quarter, said ASPS. Oil prices have been declining the past two days.
The continuing depreciation of the baht also reflects fund outflows because of a lack of supporting factors during the pandemic.
ASPS said the fear of a lockdown is intensifying as the number of daily new infections continues to set record highs, causing stock markets to fluctuate during this period.
Considering the economic impact of the past lockdown, this panic can also cause the indices to decline, said the brokerage.
After the Samut Sakhon cluster emerged, a partial lockdown caused the SET Index to drop 6.34%, while concerns about zone division measures caused the Index to dip 4.79%.
The imposition of strict pandemic measures have caused the bourse to fall around 4-6% each time, said Mr Therdsak.
However, if the number of daily new infections decreases in the next quarter, the SET will gradually recover, said ASPS.
He said the brokerage's investment strategy for this environment is holding 25% in cash to prepare for investment when the spread is controlled. Some 75% of investments should be allocated to stocks with low volatility, good profit prospects, and supportive factors such as hospitals, said Mr Therdsak.
ASPS recommends Bangkok Dusit Medical Services (BDMS) because it is likely to grow given rising demand for medical examinations and vaccinations.
In addition, M.C.S. Steel Plc (MCS) has low volatility and high dividends. ASPS expects its profit in the second quarter to increase significantly year-on-year. The company should also benefit from a weakening baht against the yen, he said.
North East Rubber Plc (NER) is an export stock with promising profit growth prospects in the second quarter, and should be another beneficiary of the depreciating baht, said ASPS.