Bangkok--7 Jan--SCB
The Stock Exchange of Thailand is projected to enjoy a continued bullish trend in 2011, with the composite index targeted to reach 1,200 points, according to the SCB Securities (SCBS) Research Group.
Mr. Kiattisak Jenwipakul, CFA, Managing Director of the SCB Securities Research Group, said: “ We forecast the Thai stock market to continue its rally in 2011, with the SET index likely to surge to 1,200 points. But bullishness will not be as strong as that of 2010. The strong SET rally last year was not too hot when compared with other stock markets in the same region. At present, securities in the Thai stock market trade at an average price/earnings (P/E) ratio of 12, which is the second lowest after that of South Korea. Looking back at the past, SET has increased very little compared with other markets in Asia, with the exception of Japan. Political problems have been key negative factors to a SET rally.”
“We expect the political situation to remain stable for now since the general election is due to take place within the next 12 months, but we do not think institutional investors will pay a further premium for the Thai stock market this year. The earnings growth rate will be the remaining positive factor that helps drive the SET index. Given the expected P/E ratio of 14 in 2011 on an assumption made by our research group that stock profits grow at 29% in 2010, 12% in 2011, and 12% in 2012, we project the SET index will surge to 1,200 points. The targeted P/E ratio of 14 is equivalent to an average P/E ratio of 12 plus 1 standard deviation, which is close to the current P/E ratio of the Thai stock market and other ASEAN markets. Thus, our projection that the SET index will reach 1,200 points this year is not beyond imagination,” said Mr. Kiattisak.
SCBS Senior Vice President Sukit Udomsirikul, in charge of overseeing the Retail Strategy Department of the SCBS Research Group, revealed four key factors that will influence investment decisions this year:
- Local interest rates are expected to be on the rise in 2011. This will provide major banks with a large savings deposit base an advantage.
- Consumption by Asian consumers will continue increasing as Asian economic growth still outpaces that of the United States, Europe, and Japan. Greater attention by consumers to services provided by modern retail shops will benefit the retail trade sector.
- Foreign direct investment (FDI) has recovered as a result of the relocation of the production base to ensure efficient control of manufacturing costs, especially by Japanese car makers suffering from a stronger yen and rapid wage increases in China. This trend will benefit the industrial estate and vehicle parts sectors.
- Basic infrastructure development has resumed in the countries of Southeast Asia, benefiting contractors.
In addition, Mr. Sukit gave his perspective on the stock market outlook for the first quarter of 2011, saying that the SET index is likely to hover around 924-1,078 points. Investment sentiment in the market will be boosted by higher than expected US economic growth this year.
Commodity stocks, particularly in the oil and coal business, and stocks in the export sector such as electronics and vehicle parts, will benefit from the trend because their profits in 2011 are expected to increase more than targeted.
Risk factors to securities trading in the first quarter include impacts of a stronger US dollar on foreign investment, further interest hikes in China, and possible interest increases to tame inflation that may be made during two meetings to be held in the first quarter of this year by the Bank of Thailand's Monetary Policy Committee.
Stock picks selected by the SCBS Research Group for 2011 are based on four criteria, including:
- Net profits from performances in 2010-2012 will grow at an average of more than 15% per annum, which is higher than the market average.
- Companies will have room for investment expansion or opportunities for business mergers and acquisitions, which will contribute to continued profit growth.
- Stocks will trade at lower prices, or when compared with that of other stocks in the same sector.
- Companies will have increased leverage when setting selling prices of goods and services against the inflation hike.
Qualified stocks picked by the group for this year are KBANK, KTB, BANPU, PTTCH, PS, AMATA, SCC, HMPRO, and STEC.
The SCBS Research Group will prepare 2011 Investment Strategy Reports roughly every quarter, containing analysis of investment factors and conditions of interest to investors seeking timely information for their investment decisions.