WEAK EARNINGS A SLIGHT HICCUP
MARKET RECAP: Thai shares moved sideways in the past week, with volatile movement in individual stocks in response to their third-quarter results.
Underperformers included ICT plays such as ADVANC and INTUCH, with a below-forecast performance from ADVANC dragging down the sector. MINT fell on concern about a 2018 earnings decline due to the acquisition cost of NH Hotels, while earnings of SPRC and KCE also disappointed investors.
Outperformers were mainly cheap stocks with potential for an earnings recovery, among them CENTEL and AOT, which should benefit from a tourism recovery over the next four months thanks to new government stimulus measures. TU, SF and VGI also gained on better-than-expected third-quarter earnings. A recovery was seen in some stocks that experienced sell-offs earlier when they reported weak results, such as CPALL and SCC.
MARKET OUTLOOK: We expect trade on the SET to be sideways up this week. Supportive factors include: Limited downside for third-quarter earnings implies limited downside for share prices.
The Democratic victory in the US House will likely induce investors to return to emerging markets.
Selling by foreign investors tends to ebb in November and December in line with year-end patterns. We reiterate a selective buy strategy focusing on: Earnings performance of firms linked to domestic consumption and whose results beat expectations. Commodity plays, especially in energy, amid a global risk-assets buyback as US election results bolster late-cycle stocks and the dollar softens.
Event plays such as those likely to gain from an MSCI review, and hotels and tourism in anticipation of tourism stimulus measures.
Among the positive factors affecting Thai shares: The cabinet approved visa fee waivers for tourists from 21 countries between November and January. In addition, Alibaba Group plans a Thai tourism promotion tomorrow during its Singles Day online sales extravaganza, the biggest day of the year. We expect this advertisement to reach more than 800 million views, resulting in investment sentiment for hotel and tourism plays in anticipation of robust earnings growth in the final quarter of this year and the first quarter of next year.
Foreign funds will likely flow back into emerging markets. This is based on an assumption that the US market will consolidate further, while returns of most developed markets have started to decline as signs of outflows are detected.
Given Morgan Stanley’s view of a further drop in the S&P 500, we think the opportunity exists for Thai stocks to outperform. The consolidation of the US stock market does not imply an economic crisis or recession. In any case, we think the Thai market cannot avoid negative sentiment influenced by daily movements of the US stock market.
Yet we believe the Thai market will outperform in the medium term, due to stronger economic growth, large foreign reserves and a current account surplus.
As well, foreign fund managers have been underweight Thai shares for a long time, providing an opportunity for reweighting, as opposed to other emerging markets where they have been overweight.