The benchmark SET Index moved sideways in volatile trade early this week. Thai shares tracked external gains higher on Monday to hit 1,546 points before heading down to 1,520 the following day on worries over Myanmar's partial capital controls, potentially affecting stocks with exposure in Myanmar such as MEGA, OSP and CBG.
Equities on Wednesday and Thursday were pressured by jitters over the spillover effect from the crypto meltdown after Zipmex temporarily suspended redemption for certain accounts as a result of its investment in other troubled digital asset platforms. Second-quarter earnings reports by major banks also affected sentiment late in the week.
The market next week will likely be influenced by speculation about the size of the US interest-rate increase when the Federal Reserve meets on Tuesday and Wednesday. Since the bourse will be closed on July 28-29 for holidays, investors should not rush to load up stocks in their portfolios.
We expect the SET to move sideways up in the 1,510-1,600 range in August. Key factors will include rate decisions by the Fed and the Bank of Thailand (on Aug 10) as well as key macro data such as US core consumer expenditure and inflation figures for July.
RECESSION FEAR PRICED IN?
Global equities as well as other risk assets have, to a certain extent, reflected worries that high inflation could lead to an economic recession, and some analysts believe a lot of this concern is now priced in. If US inflation in August and September turns out to be below 8-9% year-on-year or 0.5% month-on-month -- in other words no worse than it is now -- it could generate a more positive environment for monetary policy decisions by global central banks.
The Fed may raise its key rate by 75 or 100 basis points only once or twice more before returning to more modest increases of 25-50 bps, while the Bank of Thailand may not raise local rate as rapidly or as much as the market has feared.
The rapid appreciation of the dollar may pause or slow while the baht could gain ground after its persistent depreciation to nearly 37 to the dollar. The Bank of Thailand has stated clearly that it will let the baht move with the market and and will not intervene for the time being.
Another key external factor to monitor is the Russia-Ukraine war. Some observers believe Russia wants to end the war before winter when fighting conditions become more difficult. They note that it is allowing Ukrainians to apply for Russian citizenship if they want to, while President Vladimir Putin has started to travel abroad to friendly countries. Other measures could follow and bring the situation under control faster than the market had anticipated.
Here at home, after the parliamentary censure debate ends with today's vote, investors should monitor government stimulus measures, given that a general election is looming early next year. In light of the appointment of yet another economic crisis management committee chaired by the prime minister, we foresee the eventual introduction of new stimulus measures.
Domestic tourism remains active, particularly during the most recent long weekend -- and another one this week. Foreign tourist arrivals have been beating most expectations while hotel occupancy shows signs of improvement, such as room rate adjustments. Many hotels could swing back into the black in the third quarter or in the high season during the fourth quarter. The positive impact will also spill over to other businesses in the tourism and hospitality supply chain as well.
Among negative factors, recession remains a real concern in the United States, which would have an inevitable knock-on impact in the rest of the world. Numerous corporate giants including Google and Apple have signalled a hold on new employment amid such uncertainty. Preliminary second-quarter US GDP figures due next week are expected to show a second straight year-on-year contraction; investors should closely monitor how steep the contraction is.
OIL PRICE IMPACT
Meanwhile, persistent rises in the prices of fertiliser and liquefied natural gas could ignite a fresh wave of inflation jitters in many countries. An oil price downtrend could weigh on Thai commodity plays given their substantial weighting on the SET, but it would be positive for stocks that move in the opposite direction of oil trends.
With earnings season just getting under way, companies with high exposure to energy prices could register weaker-than-expected results and trigger earnings downgrades. However, the SET has reflected this factor already to some extent.
Investors should also monitor how the meltdown in crypto markets is creating an increasingly pronounced chain reaction in other markets, something that wasn't the case just a few years ago.
