Oil drop, tepid loans to hit firms’ Q2 profit

Listed companies’ aggregate net profit for the second quarter is expected to soften because of the oil price decline and minimal growth in bank loans, says an Apple Wealth Securities analyst.

According to Apichai Raomanachai, the banking, petrochemical and energy sectors will be hit the hardest.

As agricultural prices and loan growth pick up, consumer product firms will experience strong growth.

The construction industry will also experience a healthy expansion, thanks in large part to investments in the Orange and Purple lines of the mass-transit system, Mr Apichai said.

SET-listed companies’ combined net profit surged by 21.4% year-on-year to 284.7 billion baht for the January-to-March quarter. Major contributors to the growth were energy and utilities, and petrochemical and chemical sectors.

Despite the sour second quarter, Thailand’s economic growth is still expected to pick up this year. Growth will be powered by higher agricultural prices, which will contribute to consumption expenditure.

Apple Wealth forecast that the SET Index will be move within a range of 1,530 to 1,590 points for the second quarter, and within 1,500-1,650 points during 2017.

Offshore fund flows to the Thai stock market after the European Central Bank (ECB) meets on June 8, and the US Federal Reserve convenes meeting on June 14 is warranted closely monitoring.

According to Emerging Portfolio Fund Research (EPFR), net fund flows from the US market registered at negative $3.3 billion as of May 24. The indicator has remained in negative territory during eight of the last 10 weeks. Outgoing funds have mostly been invested in Europe and emerging markets.

“The numbers indicate that investors have adjusted their portfolios to reduce exposure to the US market, in large part due to uncertainty around the administration’s economic stimulus package,” Mr Apichai said.

The Fed is expected to raise interest rates by a quarter percentage point in the upcoming meeting, but inflation will probably remain at 1.6%, with lower than the 2% target.

Low inflation will have a positive impact on market sentiment, Mr Apichai said, with liquidity remaining high as funds continue to flow into emerging markets, especially those in Asia.

Meanwhile, the SET Index is expected to move sideways this week, as markets around the world are driven by geopolitical risk, said Warut Siwasariyanon, managing director of the research department at Asia Wealth Securities.

Investors are wary after a terrorist attack hit London over the weekend, and the UN Security Council levied new sanctions on North Korea. US threats to use military force on North Korea add to the perceived uncertainty.

Mr Trump’s decision to abandon the Paris agreement sparked fears that more crude drilling in the US would worsen the global glut, pushing down prices and energy counters across the globe.

The general election in Britain on Thursday and the Brexit negotiations will also be major items on investors’ calendars.

On the positive side, American and European economic figures bode well.

Stocks in the health sector are some of the most interesting this month, Mr Warut said.