Investors told to trim portfolios, buy on weakness, sell on rebound
Technically speaking, it is official: the Stock Exchange of Thailand (SET) Index has plummeted 20 per cent from its 52-week closing high last October 29, when it was at 915.03 points, and the Thai bourse is entering a bear market.
Accelerating inflationary pressure, mounting political tensions and growing fears of global economic recession have all prompted a concerted sell-off of by both local and foreign investors.
Thanachart Securities yesterday said foreign ownership in Thai stocks - excluding non-voting depository receipts (NVDRs) - fell from 28.95 per cent in May to 28.5 per cent last month. Foreign holdings through NVDRs declined from 5.8 per cent in May to 5.4 per cent last month.
Thai stocks seeing the greatest drop in foreign ownership of both shares and NVDRs last month included Kasikornbank (KBank), down 3 per cent; Siam Commercial Bank, down 2.45 per cent; Thai Oil, down 2.3 per cent; Land and Houses (L&H), down 2.26 per cent; BEC World, down 1.36 per cent; and Bangkok Bank, down 1.35 per cent.
Several brokers believe the sagging stock market has not yet bottomed out and is likely to tumble below the 700-point barrier. Here is what some of them are recommending in the current atmosphere.
Capital Nomura Securities (CNS)
The broker believes the outlook for the Thai stock market over the next three months is for further falls, with resistance targets of 737 and 689 points.
The recommended investment strategy is short-term investment to sell on rebound.
"CNS has maintained its recommendation to hold stocks at 20 per cent of portfolio, and we believe the stock market is in a period of finding its bottom level. It's possible to see 737, 700 and 689 points," the broker said.
Stocks related to energy and alternative energy, including Banpu, PTT Exploration and Production (PTTEP) and Thai Vegetable Oil (TVO) should make up 70 per cent of stock investments, with the remainder placed in dividend plays, including BEC World and Advanced Info Service (AIS).
The broker recommends "short sell" in building-materials - with the exception of steel - transportation, electronics-components, auto, shipping, oil-refinery and petrochemical stocks on anticipation that their earnings in the second quarter would not be impressive or their businesses in a downward cycle.
vice president Pongrat Ratanatavanananda
Due to spiralling inflation and the tense political scene, the Thai stock market is likely to plunge below the psychological 700-point barrier in the next two or three months.
The escalating price of oil has pushed up the costs of products and services, but these costs have not yet fully passed through to prices.
"Oil prices started to jump in February, but our inflationary pressure was felt in April. This indicates that inflation lags behind the oil price. Our research house thinks inflation will peak in September. As well, local political tensions continue, and the implementation of any government policy will require a greater effort," she said.
"The Supreme Court will rule tomorrow in the electoral-fraud case involving former House Speaker and People Power Party MP Yongyuth Tiyapairat. In the worst-case scenario [Yongyuth being found guilty], the Thai stock market will not suffer panic selling, because it has already factored [this outcome] into current share prices."
Pongrat recommends "wait and see" as a strategy for those looking for an opportunity to buy stocks and "sell while the SET rebounds" as a strategy for those who have stocks in their portfolio.
"Investors should hold 80 per cent cash and 10-20 per cent stocks," she said.
She recommends investors gather upstream-energy stocks, including PTTEP and Banpu and stocks unlikely to be affected by inflation, such as TVO, Thai Tap Water Supply (TTW) and Bumrungrad Hospital.
"This is not the right time to buy these stocks. Investors should wait and buy them when their prices are weakest. PTTEP may be reaping benefits from the surging oil prices, but the stock market's sentiment is sluggish," she said.
KGI Securities (Thailand) vice president Adisak Kammool
Investors should wait for a clearer political situation in a week or two and the release on July 18 of the banking sector's second-quarter earnings.
If these two factors are negative, investors should divest 30-40 per cent of their stock portfolios and buy back when the prices are weak, in order to mitigate risk rather than cutting losses, he said.
"The SET Index has slumped more than 140 points, and it's too late to cut losses. If the [political] situation does not become violent, the SET Index will rebound rapidly," he said.
Thai shares are likely to move either up or down 100 points late this month, depending on the political situation and the country's economy.
"If everything becomes clear, foreign investors will stop selling, and the SET will likely surge 100 points. On the contrary, the SET Index will dip 100 points. If the SET breaks 730 points, the next resistance level is 690," he said.
Kim Eng Securities (Thailand)
Political factors and the foreign investors' sell-off still cast dark clouds over the Thai stock market. Foreign investors have been net sellers of Thai shares worth a combined Bt53.6 billion since May 21, and the SET Index has plunged 141 points in the same time - a larger drop than that when the Bank of Thailand announced its 30-per-cent capital reserve requirement on December 18, 2006.
The broker, however, is not very pessimistic and believes the stock drop represents an opportunity for investors to scoop up cheap stocks. It recommended buy on weakness for big-cap stocks including KBank, AIS, L&H, BEC World and PTT Exploration and Production.
It suggested investors hold 70 per cent cash and invest the rest in the stock market.
"Ten per cent each should be put into large-market cap and SET Index-sensitive stocks, 6 per cent in stocks with good news and 4 per cent into small-market cap stocks," the broker said.
Recommended SET Index-sensitive stocks include Bank of Ayudhya, Thanachart Capital, BEC World, L&H, Quality Houses, Asian Property and Thoresen Thai Agencies. Stocks with good news include Airports of Thailand, Central Pattana, TTW, Hana Microelectronics and TVO, while recommended small-market cap stocks are Unique Mining Services and Bangkok Chain Hospital.