The Stock Exchange of Thailand traded sideways throughout the month of May. After touching 1,400 points in April, the SET index never got close to that level again.
The first half of the month was optimistic, with the index up slightly to almost 1,390.
However, the second half was a different story, with the index slumping to end May at 1,345.66 points, a 1.5% drop from the month before. Average daily turnover was 43.6 billion baht, up 2.5% from April.
The main market event in May was the MSCI rebalancing on the last day, with the SET falling 5.48 points and daily turnover shooting up to 74.8 billion baht, the highest of the year to date.
We started June with a negative investment tone. In late May, 40 senators filed a case with the Constitutional Court against Prime Minister Srettha Thavisin, alleging his appointment of a felon who served time for trying to bribe judges -- he later resigned -- may have run afoul of ministerial ethics rules in the charter.
The court will begin hearing the case against Mr Srettha on June 18. This has created market concerns, with the worst case the premier could be ousted pending a guilty verdict. In this instance, the government would be dissolved and a new prime minister appointed with a new government.
Another case weighing on sentiment involves the opposition Move Forward Party, which faces possible dissolution for its declared intent to amend Section 112 of the Criminal Code, the lese-majeste law.
The Move Forward case will also be heard on June 18, after the court asked the Election Commission to submit more evidence to back its case against the party.
Lastly, a lese-majeste case was filed against ex-premier Thaksin Shinawatra, who is scheduled to report to prosecutors on June 18. His lawyers are challenging the validity of the complaint that was filed nine years ago, alleging that prosecutors faced intimidation from the military regime of the day.
With so many uncertainties, especially on the political front, market sentiment has been depressed since the beginning of June.
Foreign investors are net sellers in the market and the SET plunged to an almost four-year low of 1,313.26 points in early June.
We believe the negative sentiment will continue to pressure the market until the Constitutional Court rules on the political issues.
We maintain a neutral base-case view and expect no significant change in the government, with the Pheu Thai Party likely to remain in power.
Even if the Move Forward Party is dissolved, there should be no significant change in the political environment, as most of its members are expected to join a successor party believed to have been set up in the event of a dissolution order. That party would remain in opposition.
FOCUS OUTSIDE THAILAND
Amid this negative investment environment, our investment strategy is geared more towards stocks related to exports or business outside of Thailand versus domestic plays. Our picks include Amata Corporation (AMATA), Bangkok Dusit Medical Services (BDMS), Hana Microelectronics (HANA) and i-Tail Corp (ITC):
- The industrial estate operator Amata announced solid property sales of 312 rai in the first quarter and is now focusing more on Chinese clients (86% of Q1 sales). The company has a huge backlog of 13 billion baht in property sales and is targeting industrial estate development in Chon Buri and Rayong provinces. Although its Q1 earnings were just in line with our estimate, we believe Amata should be a long-term beneficiary of the government's efforts to promote foreign direct investment.
- BDMS, the operator of the Bangkok Hospital chain and others, announced a first-quarter net profit of 4.1 billion baht, up 17% year-on-year and 3% quarter-on-quarter. Earnings were better than expected, even though the first quarter is the low season for hospitals and there were more Ramadan days during the quarter. Revenue from foreign patients continued to grow strongly: China (up 45%), France (29%), USA (19%) and Germany (18%). Middle East patients declined in first quarter, but returned swiftly in April (up 25%) and should enhance growth in the second quarter. Meanwhile, BDMS is reaching a conclusion on an agreement to partner with the Saudi Arabian government. These efforts, alongside the promotion of medical tourism, mean BDMS should outperform other hospitals and have strong growth this year.
- HANA continues to be our top pick for the electronics sector. First-quarter profit of 352 million baht was slightly below market expectations as integrated circuit (IC) demand stayed weak and subsidiary Power Master Semiconductor Co Ltd (PMS) continued to contribute a loss. But Hana has been continuously installing new machinery and we believe the PMS business should turn positive in the next year. Also, with the growing demand for AI and electric vehicles, we believe IC demand will rebound soon. The combination of contributions from PMS and brisk AI and EV business brighten Hana's long-term outlook. In addition, the export-oriented company is a beneficiary of the weak baht against the US dollar.
- For ITC, the first-quarter net profit of 821 million baht, jumping 93% year-on-year and 7% quarter-on-quarter, was no surprise. Exports of pet food have been one of the few categories to enjoy steady growth. The company's margin also improved significantly to 25.7% in the first quarter from 17.4% a year earlier. This reflected a product mix that is now geared more towards premium product sales, as well as continuous product launches. Moreover, ITC is a candidate to enter the SET100 when the next revisions are announced on July 1. Inclusion would attract more funds seeking to add ITC to their portfolios.