Global stocks have faced unusual turbulence in the past three weeks since US President Donald Trump announced higher-than-expected reciprocal tariffs against dozens of countries.
Trade tensions eased around the middle of the month after Trump announced a 90-day tariff pause (except for China, which retaliated with higher tariffs), and waivers for certain segments such as mobile phones, PCs and semiconductors.
The Stock Exchange of Thailand (SET) swung in a wide range between 1,050 and 1,150 points during the period, with volatile movement in most blue chips, except for solid performances by safe havens such as banks and information and communication technology (ICT) stocks. Volatility subsided this week, albeit with some negative news flows, as the market reacted with movements of a smaller magnitude.
Overall, we expect the market to continue in alternating risk-on/risk-off modes in the coming week, though it will likely be less volatile than in early April. We expect the SET index to trade within a range of 1,100 and 1,150 points for the week.
The main factors influencing sentiment will gradually shift from the trade war to results of the Thai banking sector and earnings previews of major real sector companies.
Trade war issues this week will likely centre on negotiations and discussions of non-tariff measures. Investors will focus on negotiations between the US and regional peers including Vietnam, South Korea and Malaysia for comparisons and impact assessment. Thailand's team is scheduled to hold talks with their US counterparts in Washington on Wednesday.
Two main themes for short-term trading strategy are stocks with solid earnings visibility, and stocks that could benefit from changes to non-tariff barriers. For medium-term investment, the themes we recommend are:
- Speculation on GDP-supportive policies to cushion trade war risk, such as those accommodating rapid public investment and expenditure, which would benefit contractors and infrastructure players with healthy cash on hand.
- A possible Thai interest rate cut when the Monetary Policy Committee meets on April 30.
- As for long-term investment, we see dollar-cost averaging accumulation opportunities amid cheap valuations by emphasising domestic/defensive plays such as consumer staples, healthcare, power and ICT shares. Among the supportive factors are:
- Short-term relief after the market previously priced in the worst-case scenario for tariffs;
- Thailand pursuing a win-win result from trade negotiations with the US. While it proposes to buy some priority products including US agricultural raw materials, Thailand will focus on competitive prices. Purchases of US liquefied natural gas at attractive prices should benefit Thailand. On the non-tariff front, Thailand will prioritise products with complicated import criteria and those requiring certified origin to ensure they are produced in Thailand, not just assembled in the country;
- Potential rate cuts by the Fed, European Central Bank and Bank of Thailand;
- Cheap valuations of Thai stocks at low price-to-book value (PBV) of just 1 time with limited downside. During past external crises, PBV has hit 0.9 times;
- Expected economic stimulus via sizeable investments to offset the impact on some export sectors from US tariffs. More support is expected for irrigation systems and agricultural restructuring to add value, as well as a push to speed up work on double-track and high-speed rail projects, including the long-delayed three-airport rail line of Don Mueang-Suvarnabhumi-U-tapao.
Key risks remain the trade war and potentially slower global economic growth as it is difficult to predict Trump's moves. As a consequence, foreign exchange and bond yields will likely be volatile and affect investment strategy direction. Investors are mainly seeking refuge in gold.
On the domestic front, aggregate first-quarter earnings of listed firms are expected to contract by 13% year-on-year, though they will be up 16% quarter-on-quarter, due mainly to energy and petrochemical sector performance reflecting changes in energy prices, refining margins and petrochemical spreads.
Excluding extra items and the energy/petrochemical sectors, core profit is projected to be relatively stable, with a 2% annualised gain and a 3% quarterly rise. Blue chips are exposed to downside risk from earnings cuts. Market participants should invest with caution.