10 things we expect to see next year

With 2024 just around the corner, we are taking the opportunity today to list 10 things that could impact the Stock Exchange of Thailand next year. We will detail our reasons and share our views of the market implications. Here are our 10 calls for 2024:

1. Bad news in the US will become actual bad news for the market (versus the current "bad is good" dynamic).
2. The delay in the Thai government budget for fiscal 2024 will hurt domestic growth, especially in the first half of the year.
3. The impact of the 10,000-baht digital cash handout will be significantly lower than expected.
4. Though global monetary easing is expected, the domestic yield curve will still steepen.
5. Foreign fund flows will not yet return.
6. Tourist arrivals will disappoint, with only moderate growth next year.
7. Keep an eye on chemicals, with opportunities to arise in the second half of 2024.
8. Healthcare is still a safe haven.
9. Stay with luxury low-rise in the property sector for another year.
10. Our end-2024 SET Index target is 1,550 points. The SET will remain weak in the first half before recovering late in the year and (hopefully) closing the year with a gain, versus a decline this year.

INVESTORS' VIEWS

Here are some of the key messages we've heard from the local institutional investors we have met recently:

• Investors we met were more optimistic about next year than we are: In general, we are cautious about Thai equities in 2024, especially for the first half, when we believe the global market will slow down alongside the US economy. This, coupled with domestic risks, including the delay in the Thai fiscal budget, should result in a SET downtrend. However, many investors, while not overly bullish, see only limited market downside at this point. They cite low multiples in many big sectors, including energy, banks and commerce.
• The biggest pushback we encountered was on bond yields: Our outlook report calls for 10 events/themes for next year. The call that proved most controversial is our expectation that domestic bond yields will increase next year, contrasting with expectations for a global bond yield decline. Our view is underpinned by higher bond supply, a rising required rate of return from investors, and a weak current account for Thailand. Many investors we met, however, believe domestic bond yields should not diverge from the global yield trend.
• Investors we met are more positive about banks than we are: We are cautious about the Thai banking sector as we forecast a year-on-year decline in sector earnings next year. In our outlook report, we downgraded the sector to Underweight. A number of investors argued that there is scope for credit costs to fall, cushioning the bottom line. In addition, sector valuations have been low despite expectations for improving income in the recent quarters. Hence, investors believe there should not be much share price downside at this stage.
• Other observations: There was some minor pushback in a few other areas. First, some investors suggest that if the Fed cuts its policy rate faster than the market expects, in other words, starting late the first quarter of 2024, the impact on the global market -- and the SET -- may not be so bad. Second, some investors believe the Thai government's digital cash handout might not take place at all, as there is risk that it could be taken to the Constitutional Court. The court's ruling may lead to a scenario in which the government is unable to implement the programme at all.
• Lastly, some investors see the commerce sector on the SET as no longer attractive, given the intensity of competition. Even though the sector has been devalued somewhat, multiples still don't look very cheap given the dimmer earnings prospects.

Against this backdrop, we expect the market to remain volatile next year, especially in the first half of 2024 when impact is felt from slower economic growth, both domestically and abroad.

After a severe economic deceleration (or recession) is seen in global growth, central banks (likely led by the Fed) should start to ease, cushioning overall economic activity.

Following a stabilisation in growth, which we expect to happen around year-end 2024, the door should open for market recovery.

Hence, we have set a year-end 2024 SET target of 1,550 points, which represents a forward price/earnings ratio of 17.9 times the forecast earnings per share (EPS) of 95.80 baht. That compares with 1,440 points in 2023, representing a forward PE of 16.9 times forecast EPS of 86.70 baht.

As mentioned, the SET should remain weak in the first half of 2024 before recovering later in the year.

Given the risks in the first half of next year, our top picks concentrate on stocks that are defensive, those with good growth stories and/or those with solid balance sheets: BBL, SCB, CPALL, PTTEP, ADVANC, CPN, ERW, BDMS, SISB and RBF.