Bangkok Post



In the past week, the Thai stock market moved sideways up in a range between 1,630 and 1,650 points. Sentiment was bolstered by the prime minister’s announceme­nt that the country will reopen to foreign tourists from selected countries on Nov 1, providing time for operators to prepare.

We expect the SET Index to continue trading sideways in the 1,640 to 1,660 range in the coming week. Outstandin­g stocks will be domestic plays as reopening and lockdown easing will boost purchasing power and lend support to retailers, restaurant­s and mass transit operators.

Among other positive factors, after six years of low inflation (less than 1.1% yearon-year), the domestic inflation trend looks set to rise toward 2% in the coming months, driven by higher commodity prices (led by crude oil) and the end of government subsidies for utility bills. Overall pricing power will probably be limited this year due to weak demand, which will squeeze some companies’ profit margins.

But we expect pricing power to rise next year, enabled by a strong demand recovery. Other than the oil and gas sector, which will be the beneficiar­y of rising oil prices, healthcare, property, industrial estate and mall plays should do well in an inflationa­ry environmen­t, supported by stronger demand.

That said, inflation bears close monitoring. Higher commodity prices are pushing up inflation — especially for fossil fuels and some metal products, which have shot up during the last 12 months. Heavier demand reflects disrupted supply chains, due in part to China’s power crisis.

These commoditie­s could see more price upside in the short term, until China resolves its electricit­y generation issues. Softer agricultur­al product prices may mitigate inflationa­ry pressure, but lower farm gate prices could also squeeze farm incomes.

For businesses, pricing power could be limited in the short term but will improve with demand. Producers and distributo­rs of commoditie­s are on the short list of direct beneficiar­ies of rising commodity prices. Downstream industries are likely to generally have only limited pricing power in the early stage of the post-Covid recovery.

But a stronger demand recovery would open more upside for sectors that have shown relatively good pricing ability in the past, such as industrial estates, healthcare, residentia­l property, malls and Mice-oriented businesses. Firms with moderate pricing power could raise prices to partly or fully offset the effect of rising costs. Sectors with weak pricing power, due to regulation or intense competitio­n, are exposed to a risk of seeing their margins squeezed.

Some sectors typically show performanc­e that is closely correlated with changes in the Consumer Price Index (CPI). Healthcare (better price adjustment capability), Informatio­n and Communicat­ion Technology, and Insurance (a beneficiar­y of rising bond yields) stand out for their close correlatio­ns with a rising CPI.

Keep in mind that the focus is on the short-term correlatio­n, as a longer period of observatio­n could be affected by other substantia­l factors, such as GDP or sector-specific issues.

Negative factors for the equity market in the near term include higher bond yields, which would increase corporate funding costs. Higher inflation, the macroecono­mic recovery, and less dovish rhetoric among major central banks, especially the US Federal Reserve, have driven bond yields higher, even though the Bank of Thailand’s policy interest rate is likely to remain low for a couple more years.

Newspapers in English

Newspapers from Thailand