Trade on the Stock Exchange of Thailand was quite volatile in the past week. The SET Index climbed towards 1,670 points early in the week before surprisingly high US inflation dragged down global risk assets and Thai shares on Wednesday morning.
The downside was limited, however, as investors bought shares back, causing the SET to move sideways around 1,650 later in the week, before drifting down again on Friday. Certain stocks such as DELTA were quite volatile and influenced overall market direction.
Stock rotation between the banking-insurance, energy and retail sectors was seen during the week. Outperformers included electric vehicle-related stocks, software tech plays (rotation between sectors also took place), and stocks with a clear catalyst and robust earnings momentum such as EA, WHAUP and BRR.
Barring any surprise, the SET is expected to move sideways this week in a rather wide range between 1,630 and 1,670. The most important factor to monitor will be the Federal Open Market Committee meeting on Tuesday and Wednesday, as investors wait to see how much higher the US central bank will push interest rates.
Since the Fed's last meeting in late July, officials have been making hawkish statements about fighting inflation that have shaken global financial markets. Based on the latest inflation data, economists now generally expect the Fed to increase its benchmark rate by 75 or even 100 basis points, versus 50 to 75bps expected earlier.
Hardly any analysts now expect a 50bps hike, reflecting that the market has largely priced in the bearish tone and is monitoring indicators of further increases, including the Fed's own "dot plot" survey.
Locally, life insurers such as TLI and BLA will directly benefit from a clear upswing cycle in interest rates.
NEGATIVE FACTORS
In this article, we would like to offer a longer market outlook beyond a one-month time frame. Since the most recent global rally has been driven by both greed and fear, any disruption could pull the market back down.
Worrisome negative factors include:
- Inflation not decelerating as fast as expected. Persistent high inflation could ignite a genuine economic recession -- not just nominal technical recession -- in major economies such as the US and EU and could eventually lead to global recession. Some countries could be safe havens, on which we will elaborate later.
- The aforementioned scenario could encourage the Fed to raise rates quickly and continuously to 4-5%, leaving no other choice for other central banks but to follow suit. More importantly, high rates may persist for as long as it takes to bring inflation down to a 2-3% target range, at the cost of economic contraction.
- More catalysts for severe economic contraction exist in the form of a European energy crisis amid spiking gas prices in the coming winter, due largely to the Russia-Ukraine conflict. Unsettled disputes could lead to business closures and a worse recession than in the US.
- China's measures are seen to be insufficient to fix its struggling property sector given the massive magnitude of the problem. Thus, China may not be the white knight to save the global economy as in the past.
POSITIVE FACTORS
On the positive front, emerging markets with solid economic fundamentals such as Vietnam and Thailand should benefit as safe havens for fund flows because:
- Core inflation is not as high as in the aforementioned developed markets. Therefore, local central banks are not in dire need of quickly raising their interest rate, compared with the US and EU.
- The economy in Thailand is on a recovery trend, particularly from pent-up tourism demand that will propel GDP growth in the next one to two years and reduce pressure on the export sector. We anticipate even greater GDP divergence between developed and emerging markets next year.
- Distance from geopolitical conflicts and a well developed infrastructure make Thailand and Vietnam attractive targets for relocation of production from China and other countries. Therefore, economic risks appeared to be slimmer than in China and developed markets.
- Over the next 1-2 years, the SET may swing along with global markets. But barring any force majeure, such as longer than expected severe flooding, the Thai market is ready to rebound at any time from supportive fund flows as mentioned above.