During the past two weeks, the Stock Exchange of Thailand headed south to test support at around 1,400 points, before staging a rebound on the back of short covering and technical signals.
There were several excuses for investors to dump shares in the past week as the market tends to overreact in bearish mode. They included worries over bad debt in the banking sector, foreign brokers downgrading Thai banks, pressures against high interest rates, speculation that the US Federal Reserve might not cut rates as fast as previously expected, China-Taiwan tensions, the Red Sea crisis, and so on. Thus, defensive plays seemed to outperform the overall market.
However, we noticed that outperformers generally are Alpha stocks with specific catalysts, implying that, deep down, investors are still in risk-on mode. These stocks include clean energy-related businesses, buoyed by encouraging news about factory solar rooftop and green power tariff programmes from the Energy Ministry.
Small to medium-sized tech plays also registered broad-based gains on the back of a peak-rate theme.
In the coming week, we expect the SET index to recover after consolidating at around 1,400, testing initial resistance at 1,420 and 1,425 to resume risk-on mode.
However, we are not pinning a lot of hope on the January effect triggering a significant rally this month; perhaps see-sawing trade is the best we can hope for.
Under the current circumstances, we emphasise a selective-buy strategy, focusing on fundamental stocks expected to report solid fourth-quarter 2023 earnings growth, together with trading-buy stocks with supportive technical signals and specific catalysts.
Our recommended blue chips are CPALL, CPAXT, AOT and WHA, while our top picks among small and medium-sized stocks are DITTO, SRS and COCOCO.
After banks released earnings last week, we believe the market will shift its focus to interesting stocks in the real sector.
POSITIVE FACTORS
In the short run, the market will likely be driven by sentiment from key economic indicators due this week including US preliminary fourth-quarter GDP, purchasing managers index updates and personal consumption expenditure, a gauge of consumer inflation that is preferred by the Fed. However, they are not expected to differ much from market expectations.
Positive factors in the medium to long term remain the same. They include a clear downtrend in US bond yields, no negative surprises from economic indicators of many countries, and optimism over Thai economic policies.
Based on statistics since 2000, the Thai stock market -- which lost 15% last year -- has never recorded a negative return for two years in a row. Therefore, investors are hoping for equity-linked inflows.
Bualuang Securities recently conducted Thai Corporate Day for its clients to hear the outlook from 26 leading listed companies. Overall, most companies were cautiously optimistic. Despite slowing consumption of discretionary goods (reported by both home construction retailers and IT retailers), consumption of staple goods and businesses linked with tourism (department stores, food and beverage, and airlines) continued to grow.
We think investors are waiting with optimism for economic stimulus following the passage of the fiscal 2024 government budget, possibly in April, which could boost both consumption and investment.
Another key checkpoint is the global economic environment, with expectations growing for a soft landing without a recession. We should see clearer signs in the second quarter.
A soft landing accompanied by Fed rate cuts and the absence of economic problems could propel the market to enter bullish mode. However, the opposite could eventually lead to bearish mode instead.
Among the risks and negative factors we identify the following:
- Slower than expected US GDP growth or persistent declines in US employment amid higher than expected inflation.
- Chinese economic risk, particularly in the property sector, which has yet to be resolved.
- Domestic political risk and the possibility that government policies will not materialise as anticipated.
- Geopolitical tension and ongoing armed attacks in Ukraine and Gaza.