The SET index gained early this week before swinging down to around the 1,620 level after the US Federal Reserve's latest interest rate decision. Investors are now worried that the pace of rate increases will not slow as much as the market had expected earlier.
While the Fed increased its benchmark rate by 50 basis points as expected, it signalled that rates will likely remain at high levels throughout 2023 before turning downward in 2024. The Fed also slashed its 2023 GDP growth forecast for the US to just 0.50% from 1.2% previously. The negative surprise ignited a sell-off in global equities.
We expect the SET Index to trade in a gradual "sideways-up" mode in the near term. Profit-taking pressure will probably subside as investors are expected to start accumulating stocks again. Support for next week is pegged at 1,615 points, while resistance is at 1,640 and 1,650.
With light turnover expected in the final two weeks of the year, the SET should not move far from the current level. The main strategy is to pick selected stocks with positive catalysts for next year such as those related to electric vehicles (EV production, parts and electronics) and manufactured goods that will benefit from softer inflation.
Among positive factors, global inflation is showing clear signs of decelerating and has so far been falling faster than anticipated. The latest readings in major markets demonstrated broad-based declines (not only in energy prices), reaffirming views that inflation has already peaked. Meanwhile, costs that were driven by inflationary pressures will gradually fall back down. We believe the end of the current "ice age" will bring the start of a new bull run.
Economic growth prospects in 2023 will change substantially from this year. Developed economies such as the US and most European countries will register slower growth, while developing countries like Thailand will likely show clearer signs of recovery. This will likely drive fund flows from developed markets to emerging markets.
In addition, Thailand remains hopeful about a full reopening of China, expected by mid-2023, leading to a greater volume of inbound Chinese tourists and business travellers. As a result, we could see outstanding performance from stocks related to tourism, retail, luxury goods, industrial estates and property for a certain while.
As an indirect benefit, ports and logistics businesses will be back to normal as well. Factories in China will return to full capacity utilisation, while many new plants in various countries are about to start operations, which will ease supply shortages in some sectors.
The supply chains for automobiles (now shifting to EV parts) and electronics (China is a key manufacturer) will benefit from greater volumes and the resumption of order deliveries. They will also benefit from future opportunities amid a rising EV trend that could lead to massive usage of semiconductors.
The coming Thai election, which must be held by May 7 next year, could also lend support. Based on our study of statistics from the past 11 polls (2001-19), we found that returns on the SET usually start to turn positive about 10 days ahead of the election date and remain so for 10 to 30 days afterward.
Targeted sectors that normally outperform the market during this period are banks, commerce, industrial estates, food and tourism in anticipation of economic stimulus from a new government. In general, political conditions are usually positive around an election period.
Among negative factors, the baht has turned firmer amid general dollar weakness. The baht could appreciate further in tandem with persistent inflows from abroad. Excessive baht strength could hurt exporters if the exchange rate hits 30-32 baht to the US dollar, levels that have triggered calls from exporters for aid measures in the past.
As well, the market could suffer from a prolonged sluggish trend if the recession in the West is not just a technical recession.
On the domestic front, investors should keep an eye on lavish election campaign promises and their possible consequences for the economy. For instance, excessive wage increases could have a negative impact on labour-intensive industries such as the construction and agrifood sectors.
Meanwhile, geopolitical conflict remains a key risk factor that could weigh on investment sentiment and must continue to be closely monitored.
