Tisco sees B7bn foreign sell-off on tepid Q2 earnings

The foreign sell-off in equities could reach 7 billion baht this month and next, with foreign and institutional investors expected to dump large-cap stocks because of lacklustre second-quarter earnings, says Tisco Securities.

With the anticipated outlook, investors are advised to avoid large-cap stocks and channel their money into mid- and smallcap stocks because they are considered laggards, said deputy managing director Viwat Techapoonphol.

The second-phase inclusion of Chinese stocks, known as A-shares, into the MSCI stock indices this quarter will also entice foreign investors to sell their holdings of Thai equities, Mr Viwat said.

The first-phase inclusion of A-shares in May prompted foreign investors to sell domestic shares worth 52 billion baht, he said, causing the Stock Exchange of Thailand (SET) index to fall by 3%.

Due to a combination of mediocre projected second-quarter earnings for largecap stocks and the additional inclusion of the A-shares, foreign funds are expected to depart Thailand’s bourse to the tune of 7 billion baht, Mr Viwat said, citing Deutsche Bank research.

“Thailand’s stock market i ndex is anticipated to rise in mid-August, then is expected to continue falling until early September,” he said. “The US Federal Reserve’s projected interest rate hike on Sept 13 is another factor accelerating fund outflows.”

The SET index’s resistance level is tipped to hover around 1,720-1,740 points, with the support level anticipated at 1,650-1,670, according to Tisco Securities.

But domestic private consumption growth, continuous export expansion and recovery in public investment are factors revving up Thailand’s GDP growth, which is forecast to expand by 4.4% this year, Mr Viwat said.

If clarity on Thailand’s general election comes into view by October and the election is held by May next year, foreign fund flows will return to the SET, he said.

In July, foreign investors pulled 10.62 billion baht from the Thai bourse, in line with outflows from the Thai bond market in which foreign investors were also net sellers, according to the SET.

The SET index last month climbed 6.7% from the previous month to close at 1,701.79 points, mirroring the movements of regional peers. The SET was the bestperforming bourse in Asean in July.

The average daily trading value of the SET and the Market for Alternative Investment in July was 52.05 billion baht, up 26% year-on-year.

The forward price-to-earnings (P/E) ratio of the local bourse was 15.65 at the end of July, higher than the range of 13.93 to 15.30 for other Asian stock markets.

Average derivatives trading volume fell by 32.7% from the previous month to 374,632 contracts per day in July, stemming largely from a decline in transactions of single-stock futures.

SET president Pakorn Peetathawatchai said trade conflicts and the monetary policy adjustments of major economies still pose threats to investment in the global capital markets.

Separately, the SET yesterday posted a caution symbol (C) on shares of M Pictures Entertainment Plc, as shareholders’ equity was less than 50% of paid-up capital for the company’s second-quarter financial statements.

“Listed securities, which have been posted with the C sign, shall be purchased with the cash balance account only from the date of the C sign posting until elimination of such event,” the SET said. “Each [securities] member must ensure that its customers pay the full amount in cash prior to trading.”

Effective since July 2, the caution symbol is a flag to alert investors to invest with caution in listed companies that have financial or business risk, or those in which auditors do not express an opinion in their financial statements, or those in which they express a conditional opinion.

Companies flagged with the caution symbol are required to provide additional information within 15 days from the date when the symbol is posted.