Bangkok Post - - NATIONAL -

MAR­KET RE­CAP: Thai shares man­aged to stage a mild re­bound over the past week amid volatil­ity on global bourses. Re­newed wor­ries over a fresh round of US-China trade ten­sions weighed on over­all sen­ti­ment.

The Trump ad­min­is­tra­tion upped the stakes in its trade war with Bei­jing on Tues­day, say­ing it would slap 10% tar­iffs on an­other $200 bil­lion worth of Chinese im­ports. The list of 6,031 items ranges from con­sumer goods to agri­cul­tural prod­ucts, with the new penal­ties ex­pected to take ef­fect in Septem­ber.

Within hours of the US an­nounce­ment, China vowed to fight back with “firm and force­ful mea­sures” but did not de­tail what they would be. Bei­jing de­scribed the lat­est US move as “to­tally un­ac­cept­able” bul­ly­ing, and urged other coun­tries to join China to pro­tect free trade and mul­ti­lat­er­al­ism.

The es­ca­lat­ing ten­sion be­tween the two eco­nomic giants sent mar­kets lower as global stocks fell, the dol­lar gained and com­modi­ties slid.

OUT­LOOK FOR NEXT WEEK: We ex­pect the SET will be di­rec­tion­less and the main in­dex likely to re­main range­bound be­tween 1,630 and 1,660 with a mixed bag of both neg­a­tive and pos­i­tive fac­tors.

NEG­A­TIVE FAC­TORS: The ex­tent of Chinese re­tal­i­a­tion against US threats to ex­pand tar­iffs to thou­sands more Chinese im­ports could be­come clearer. Many heav­ily trade-de­pen­dent emerg­ing mar­kets in­clud­ing Thai­land worry about suf­fer­ing col­lat­eral dam­age. A new strat­egy report from the US in­vest­ment bank Mor­gan Stan­ley de­scribes its over­all view on emerg­ing mar­kets as “bear­ish”. It sug­gests in­vestors un­load high-beta stocks and take over­weight po­si­tions in de­fen­sive plays such as tele­coms, prop­erty, con­sumer sta­ples, util­i­ties (power plants, water sup­ply, mass tran­sit and ex­press­ways), and health­care.

Po­ten­tial ex­ists for a heavy sell-off in cer­tain sub-sec­tors on the SET. We have ob­served that there were spe­cific sub-sec­tors where in­vestors agreed to pay pre­mi­ums with ex­ces­sively high P/E ra­tios dur­ing “high times”. Now that con­di­tions are more “down and out”, the whole sub-sec­tor could suf­fer a steep fall of around 70%. This has been the case with cos­met­ics plays, which tum­bled by al­most 70%, though we ex­pect the re­cent sell­ing spree to sub­side.

How­ever, any re­cov­ery hinges largely on con­fi­dence in se­cond- and third-quar­ter per­for­mance, which will take at least 3-4 months to re­store. If the prof­itabil­ity of par­tic­u­lar stocks in the sub-sec­tor re­mains in­tact and no other ad­di­tional risk looms, such stocks could climb back up, as is the case for AU, M, BDMS and BCH, among oth­ers.

POS­I­TIVE FAC­TORS: We ex­pect a con­sen­sus down­grade of Q2 earn­ings and target prices to be a sign of the mar­ket bot­tom­ing out. We be­lieve the re­cent set­back in prices of var­i­ous stocks and sec­tors al­ready re­flect the bear­ish per­for­mance out­look to a cer­tain ex­tent. In our view, earn­ings of banks and prop­erty de­vel­op­ers should not be worse than mar­ket ex­pec­ta­tions.

Bualu­ang Se­cu­ri­ties ex­pects Q2 earn­ings of the bank­ing sec­tor to re­cover slightly, led by KTB, KKP and BBL, with es­ti­mated earn­ings growth of 46%, 22% and 11% year-on-year re­spec­tively, on the back of loan ex­pan­sion and bet­ter op­er­at­ing ex­pense con­trol. BBL is ex­pected to report 6% an­nu­alised earn­ings growth and TCAP 1% on im­proved lend­ing and lower pro­vi­sion­ing.

In con­trast, we ex­pect earn­ings growth of SCB, KBANK and TMB to slow to 11%, 3% and 1%, re­spec­tively. The ag­gre­gate Q2 earn­ings of banks un­der our cov­er­age is pro­jected at 46 bil­lion baht, up 3% from a year ear­lier, while over­all loan-loss pro­vi­sion ex­penses for the sec­tor are ex­pected to drop 13% to 40 bil­lion baht.

The SET in­dex tested a low of 1,580 last month, which we view as the bot­tom for this round. The SET earn­ings yield gap at this level stands at 4%, on par with the 10-year av­er­age and also a level that has ac­com­mo­dated mar­ket risks rather well over the past 10 years. Wikij Ti­rawan­narat is a se­nior vice-pres­i­dent with Bualu­ang Se­cu­ri­ties Plc

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