Market Recap: Trade in Thai shares was volatile this week amid heavy selling by foreign investors. Sentiment was dented by worries over US interest rates, soaring US Treasury yields, more liquidity injections by China, and rising oil prices that could undermine Thai economic prospects.
Market Outlook: We expect the SET to stabilise next week and exit consolidation mode. If the market sails through the week -- and especially if banks deliver better-than-expected results as third-quarter earnings announcements begin -- other sectors will likely be bolstered.
As current levels are close to the cost at which local funds entered in mid-September, we anticipate a slowdown n profit-taking going forward. Meanwhile, LTF and RMF buying amid the recent selloff will likely limit any immediate downside.
Positive factors: Investors have started to speculate on third-quarter earnings that will be announced from now through mid-November. The results will likely affect specific stocks and bolster overall sentiment.
Based on management guidance and the data we have studied from analyst meetings over the past two months, we expect third-quarter earnings to beat expectations. Accordingly, we recommend that investors accumulate shares amid falling prices, emphasising two factors:
stocks that will likely deliver better-than-expected earnings; and
stocks that fell sharply on disappointment with first- and second-quarter earnings, for which positive earnings guidance could result in outperformance.
Based on our study of the past four quarters, 38% of listed firms delivered better-than-expected earnings but the figure slipped to 32.5% in the second quarter of this year. Therefore, we believe results in the third quarter could surprise on the upside.
Management views: Of the 140 companies covered by Bualuang Securities research, 51% of managers are bullish and 14% are bearish. Some 49% of medium- and small-caps (non-SET50) have a bullish view while 53% of SET50 companies are also upbeat. Therefore, we anticipate non-SET 50 medium- and small-caps will have brighter prospects than in the first half.
Negative factors: A new report by Morgan Stanley forecasts crude oil prices to have a larger impact on the Thai economy, while Malaysia and Indonesia are expected to benefit from higher crude prices. Every increase of $10 a barrel in the crude price could lift Malaysian GDP growth by 0.5% and hurt Thailand's current account by -0.4% of GDP.
Morgan Stanley does not expect rising US bond yields to be the beginning of a stock market down cycle. In fact, it expects emerging markets with solid fundamentals to do well.
Morgan Stanley also suggests the spike in US Treasury yields could lead to a less hawkish view from the Fed, mindful of a possible adverse effect on US consumption from too rapid a rise in interest rates.
Meanwhile, US economic data continues to reflect a robust outlook while corporate earnings growth has been solid amid the interest-rate up cycle. Therefore, we do not think a continuous uptrend in US bond yields indicates a recession risk.