SET rangebound as earnings season winds down

SET rangebound as earnings season winds down

Thai shares moved sideways early this week as investors awaited US inflation figures and related signals about Federal Reserve interest rate policy.

The US Consumer Price Index in January increased 3.1% year-on-year, exceeding market expectations of 2.9%. Core CPI of 3.9% was also above the forecast of 3.7%. Consequently, yields on US Treasuries spiked on expectations that any rate cut will be postponed to May at the earliest, and more likely to June or beyond.

Global stocks tumbled at the open on Wednesday, dragging the SET lower, while Chinese markets remained closed for Lunar New Year holidays. However, shares subsequently bounced back while the Thai market stayed rangebound.

Barring fresh factors (beyond US inflation mentioned earlier), we expect the market to take one or two weeks to digest the news and resume an optimistic uptrend.

We view any setback in the prices of US stocks and bonds as an opportunity to accumulate. While negative factors could be short-lived, we believe US rates are poised for a medium-term downtrend and positive momentum will continue until the Fed starts cutting rates, which will be the point to take profits or sell on facts.

On the domestic front, external factors will become less influential during the coming two weeks. The Thai market will tend to be driven by specific events such as earnings announcements, which will conclude on Feb 29, and political factors such as developments related to the government's flagship digital wallet stimulus.

Among the positive factors, we have started to see signs of improvement in earnings of listed companies. Additional regulations from the Securities and Exchange Commission (SEC) to control short-selling and program trading that have caused excessive volatility will be welcome, while more economic stimulus is possible.

A total of 920 billion baht from the fiscal 2023 budget remains to be disbursed over the next three months before the long-delayed fiscal 2024 budget finally takes effect in May. The cabinet this week approved new borrowing of 560 billion baht for fiscal 2024, which will raise the deficit to around 750 billion, as part of a longer-term debt management programme.

In the medium to long term, the market will continue to be bolstered by the downtrend of US bond yields, and optimism over the resumption of fund flows into emerging markets following profit-taking in developed markets after the Fed starts cutting rates.

As well, we will soon know whether the global economy will experience a soft or hard landing. The market hopes for the former, meaning no recession and no economic hardship. Should key indicators confirm this trend, the market will likely turn bullish given that economic growth will continue (albeit at a slower pace), easier monetary policy will increase the chance for funds to flow into risk assets, and lower interest rates will reduce business operating costs.

After the Lunar New Year holidays, investors should keep an eye on China's measures to boost the economy and capital market. Rapid and strong movement could ignite a bear market rally and bolster Thai and regional equities across companies in the regional supply chain.

In Thailand, participants should also monitor the progress of SEC measures to control short-selling and program trading.

Global risk factors remain the same as before, but we note new potential emerging risks.

US financial regulators are taking a closer look at "shadow banking" in America. The Fed said recently the amount loaned by US financial institutions to shadow banks such as fintech firms and private credit groups passed $1 trillion as of Jan 31, up from $894 billion in 2023.

Growing tension in the Middle East, with attacks on Red Sea shipping showing no sign of slowing down, could ignite a rebound in crude prices.

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