Bangkok--27 Jul--SCB
With the market continuing to face multiple headwinds entering 3Q11, including the global economic slowdown, the ending of the US’ QE2, and the unresolved European sovereign debt crisis, SCB Securities (SCBS) looks for the SET Index to bottom out in 3Q11 before reaching 1,200 points in 4Q11. In the view of SCBS, the weak market seen now remains attractive at around 1,030 points for stocks that provide consistent dividends and stable earnings regardless of the state of the stock market as a whole. SCBS also leans towards defensive stocks; these include telecom services, consumer staples and finance. SCBS has short-listed six stocks as its top picks in 3Q11: ADVANC, BIGC, KBANK, STEC, SCC and PTTAR.
Speaking about the Thai stock market, SCB Securities Research Group Managing Director Mr. Kiattisak Jenwipakul said that while the market will continue to face obstacles on many fronts as we enter 3Q11, as noted above, he expects it to find a bottom over the course of the quarter. It has already corrected from its peak in late April, suggesting that - at least a certain extent - uncertainties and risks have been priced in. In addition, inflationary pressures are likely to subside towards the end of 3Q11 with a stall in the upward momentum in commodity prices, particularly crude oil prices. On the political front, political stability is expected to firm up after the Pheu Thai party itself won more than half the 500 total representatives, giving it the leadership in forming a government, which it stabilized even further by bringing in coalition parties to bring the government’s total to 300 out of the 500 seats.
SCBS believes in 4Q11 the SET index could reach 1,200 points, the target forecast made earlier this year, with foreign funds coming back to the Thai stock market after more clarity in the political scene with the formation of a stable new government followed by policy implementation. Thailand’s GDP in 2011 is expected to grow by 4-5%, with the headline inflation rate moving in the range of 3.5-4.0%. According to a study conducted by SCB Securities Research Group, corporate earnings of listed companies should grow by 33% YoY.
From a strategic perspective, Mr. Sukit Udomsirikul, Senior Vice President of Retail Strategy in the SCB Securities Research Group, suggested 3Q11 as a time for investors to seize opportunities while the market is still weak. Safe territory is at around 1,030 points, which represents a PER (price to earnings ratio) of 11.7X. This PER level has been proven strong enough to cushion against the multiple risks that have taken place since the 1997 economic crisis.
From a sectoral perspective, SCBS recommends that investors pick sectors likely to yield better returns than the market as a whole in this mid to late expansion phase of the business cycle. Accordingly, SCBS has short-listed six stocks for its top picks in 3Q11: ADVANC, BIGC, KBANK, STEC, SCC, and PTTAR. The first three are chosen based on an anticipated shift in investor perception of an early expansion to late expansion phase of the business cycle, which calls for more defensive sectors such as telecom services, consumer staples, and finance. The last three stocks are based on industry- and company-specific factors: STEC as a beneficiary of post-election infrastructure spending, SCC on M&A upside potential, and PTTAR on post-amalgamation benefits as well as brighter paraxylene product (PX) prospects in 2H11 on the scheduled start-up of regional PTA plants.