Thai shares continued to rebound this week and reached key resistances at 1,645 and 1,650 points late in the week as the earnings season ended and many companies conducted analysts' meetings.
Earnings were considered generally positive and confirmed the recovery trend after the easing of coronavirus-related lockdowns. Meanwhile, the third-quarter gross domestic product contraction of 0.3% was better than the consensus forecast for a 1.3% decline from a year earlier.
We expect the SET Index to move sideways up this week and break key resistance levels to build a new base at around 1,650 or 1,660. Interest rate-sensitive stocks such as banks and property will likely be more active, while contractors could be bolstered by news about bids for more state projects.
In the final weeks of this year, we anticipate more government stimulus, particularly those aiming to boost spending as the shop dee mee kuen campaign did not perform very well. We may also see the government put more public projects up for bids to speed up state expenditure and spur a stronger economic recovery next year.
Moreover, we anticipate a clearer recovery sign for tourism and related industries following the reopening on Nov 1 to visitors from more than 60 countries. The recovery will extend to industrial estates, restaurants, rail transport, hotels, recreation and aviation.
Consequently, earnings from domestically focussed sectors are likely to see quarter-on-quarter rebounds in the fourth quarter, enabling aggregate fourth-quarter net profit to post double-digit growth on an annualised and quarter-on-quarter basis.
We expect further progress in vaccinating the population against Covid-19 and the (near) normalisation of business to keep investors fairly upbeat about the scope for further upside for the stock market into next year. Our 2022 year-end SET target of 1,793 points implies a price-earnings (PE) ratio of 18.3 times (1 standard deviation above the market's 10-year mean) and aggregate market earnings per share of 98 baht.
We also expect the firmer baht to be temporary, however, with the Thai currency once more weakening in the coming weeks as the US dollar index continues to send stronger signals while capital inflows tend to slow towards year-end.
Negative factors to monitor include the rising political temperature in Thailand, which will weigh on stock sentiment next month. As well, oil-linked commodities could consolidate amid a steadying of global crude prices, after a decent rally in the past quarter. A potential supply increase from the US could drag on oil prices and pressure heavyweight energy and refinery plays on the SET.
