SCB Securities (SCBS) recommends focusing on stocks with pricing power and stable margins as it expects the Thai and global economies to transition from reflation to stagflation over the next 3-6 months, triggered by rising energy prices.
The brokerage said the SET Index will reach 1,660 points and move in a range of 1,550-1,780 points.
Sukit Udomsirikul, SCBS's managing director and chief research officer, said increased fuel prices have resulted in a shift towards tighter monetary policy, with growth forecasts being downgraded and the path of economic growth becoming more uncertain, resulting in the economic cycle transitioning from reflation to stagflation.
He said the Russia-Ukraine war is hampering global economic growth while causing inflation to rise as economic sanctions and uncertainties push energy prices.
These factors will force the US Federal Reserve to move forward with more aggressive and quicker rate hikes, said Mr Sukit.
The direct impacts of the Russian crisis on the Thai economy are unlikely to be severe, he said, however the global and Thai economies are both at risk of stagflation in the next 3-6 months as a result of the energy crisis.
Tighter monetary policy poses a policy risk as it has the potential to push the economy into recession over the next 12 months, said Mr Sukit.
SCBS anticipates the Bank of Thailand raising the benchmark rate by at least 25 basis points in the second half this year.
In terms of economic growth, the easing of lockdown restrictions on domestic and international travel will be critical to the economy's chances for a slow recovery in 2022, said the brokerage.
Although the likelihood of a recession in 2022 is greater, it would be a mild recession as the global economy is not currently so out of balance that it requires adjustment, along with the relaxation of travel restrictions and the reopening of countries, according to SCBS.
SCBS expects the SET Index to move between 1,550 and 1,780 points, with a target of 1,660 points based on fundamentals. There is downside risk because of the downgraded second-quarter earnings forecast.
The brokerage advises investors to concentrate on passive stocks with high, stable margins from strong pricing power, stocks that benefit from the country's reopening, reasonably priced growth stocks and quality stocks.
SCBS believes passive stocks will continue to outperform actively managed stocks, while upstream energy stocks are an excellent hedging option against rising inflation.
The brokerage continues to favour high-quality stocks with a low beta to minimise the impact of volatility.
Domestic stocks with strong pricing power and balance sheets are expected to attract more attention than those that are dependent on global economic cycles, which are more susceptible to global economic slowdowns than domestic stocks.
Investors should also prioritise stocks that are resilient to rising oil prices and inflation, said SCBS.
The brokerage predicts Airports of Thailand (AOT), Bangkok Dusit Medical Services (BDMS), Central Retail Corporation (CRC), Gulf Energy Development (GULF) and PTT Exploration and Production (PTTEP) as the top performing stocks in the second quarter.