The Stock Exchange of Thailand continued to head south in the past week amid a series of disappointments from weak earnings by major firms, such as those in electronics and shipping.
As well, negative news hit specific stocks such as GUNKUL, after the Administrative Court revoked land rights for the wind farm planned by the engineering company and partner GULF in Nakhon Ratchasima. As a result, the SET index moved down sharply towards the support at 1,650 points, or the 75-day exponential moving average.
However, we started to see some light at the end of the tunnel as investors chased certain beaten-down stocks. Targets included firms that have already released earnings and showed no threats (banks), and those registering weak results but seen as having bottomed out (small power producers and refineries).
External macro indicators such as US January inflation, slightly above forecasts at 6.4%, had much less influence on the local market than before.
In the coming week we expect the SET to form an upward pattern towards the resistance levels around 1,670 and 1,680. The number of listed companies releasing earnings will reach 70-80% of the market total, so investors will have a clearer picture of fourth-quarter performance and can anticipate buying back into certain sectors.
Among potential gainers are blue chips that were previously dumped ahead of earnings being released, which may be short-covering targets after actual announcements with a positive outlook. As well, keep an eye on firms that may not have released earnings but saw industry peers with a similar outlook bounce after earnings announcements.
Some sectors are better avoided or kept underweight given signs of continuous pressures or prolonged weak results such as shipping (freight rate competition), electronics, mobile equipment, export plays (exchange-rate worries), and finance.
Positive factors: buying back into heavyweight stocks in the petrochemical, refining and upstream energy sectors will likely drive the overall market higher after hefty sell-offs previously -- in contrast to electronics, particularly DELTA, which had provided a cushion for the market.
Tourism will remain a key theme for the economy as Chinese arrivals only started to return to Thailand, and in relatively small numbers, in the second week of January. Solid numbers for passengers and flights handled by AOT -- about 9% above target as of Feb 10 -- offer some upside to tourist arrival forecasts.
Meanwhile, summer (April-August) flight slots have been fully booked, leading to additional requirements that airlines booking slots must utilise at least 80% of their parking spaces if they want to maintain their slots.
Besides core tourism plays such as airports, airlines and hotels, we recommend investors look at firms with revenues linked with the service sector such as ASAP (car rentals) and SPA (a popular service with less competition now).
For banks that have already released earnings and conducted analysts' meetings, we see the sector having a rather cheap valuation, with potential Beta plays to ride along the market upswing.
Following earnings season will be divided season. Stocks that we expect to offer high dividend yields (excluding interim dividends) are BANPU, PSL, TISCO, TVO, JASIF, AP, THCOM, SIRI, QH, LPN and TOP.
Negative factors: Fourth-quarter earnings in general have failed to excite the market. As of Feb 14, 26% of the listed companies covered by Bualuang Securities had released earnings, 52% of which posted weaker than expected results while 32% met expectations and only 16% beat forecasts.
Baht volatility will continue to pressure fund flows and export plays that may not be able to manage excessive currency swings as in the fourth quarter. However, if the baht appreciates further and moves to between 30 and 32 to the US dollar, there could be calls for aid measures from the Bank of Thailand.
Meanwhile, the influence of international geopolitics on global capital markets could remain bumpy. It may carry less weight on the SET but still must be watched.