Last week was an exciting one for Thai stock market investors as the SET Index hit a new high for the year and also rose to its highest level since early 1994, at 1,678.23 points. Although the market dipped 11.44 points on Friday to close at 1,659.05, trading value last week was greatly improved, exceeding 60 billion baht a day. Continued investment by foreign funds in big-cap stocks has been helping to lift market sentiment.
The big question now is what will be the new target for the SET Index this year, now that it has reached new highs. (The all-time high for the index, by the way, was 1,789.16, set on Jan 5, 1994.) Most brokers currently have SET index targets ranging between 1,650 and 1,700 points for 2017. We think 1,680 is realistic, indicating that the market offers limited upside at its currently elevated level. The SET's price/earnings ratio now stands at around 15 times 2018 earnings.
Although overall sentiment is good, solid earnings growth is needed if the SET is to break through the 1,700 level. The index has already risen 8.2% for the year to date after a gain of 19.8% year-on-year in 2016.
For this week, we expect market sentiment to remain strong. Foreign trading interest has been very positive this month, lifting net buying for the year to date to 11 billion baht, versus less than 3 billion for the first eight months. We expect foreign investors to extend their buying spree in the final week of the third quarter.
Local institutions have a net-buy position of less than one billion baht this month, versus huge net buying of almost 60 billion in the first eight months. We believe more buying will come from local funds. Meanwhile, this year has been one of the biggest selling years for local retail investors, exceeding 83 billion baht for the year to date.
The recent meeting of the Federal Open Market Committee (FOMC) decided to keep the benchmark US interest rate unchanged at between 1% and 1.25%, but the Fed will start to normalise its balance sheet in October. This could put upward pressure on the bond market as well as the US dollar in the short term. However, these developments have already been anticipated by investors so the overall impact on the market should be quite limited.
Meanwhile, we expect the Bank of Thailand's Monetary Policy Committee meeting on Wednesday to hold its policy rate at 1.5%.
There should be some good news for the tourism industry as we expect the government this week will announce tax deductions for tourism expenses. We anticipate that taxpayers will be allowed to deduct up to 20,000 baht on domestic tourism spending in the fourth quarter from their personal income tax. This should help improve consumption slightly in the final quarter of the year.
For this week, we expect the SET to trade in a range between 1,650 to 1,680 points. A possible near-term catalyst could be better than expected third-quarter results from listed companies, which will start to announce earnings in late October.
Another potential driver could be an upward revision by the Bank of Thailand of its GDP forecast, in line with improved economic figures announced recently. We expect GDP growth to be 3.6% this year and the market is moving towards this figure, as is the central bank.
If economic conditions remain robust, third-quarter data could be better than market expectations. This could further boost investing sentiment on the SET in the fourth quarter. Therefore, for the last week of the third quarter, we believe overall sentiment remains positive. Although the upside for SET index could be limited, we believe it will trade sideways with selective buying. There should not be negative news to affect the market this week.
Our top picks for this week include SCC, CPALL, TCAP and TMB. As we believe foreign fund flows will continue this week, big-cap stocks should remain in focus. SCC's share price has lagged the market's performance, gaining only 2% this year versus the SET's rise of more than 8%. Overall earnings of SCC are looking good and we expect foreign funds to add the stock to their portfolios.
Another big-cap laggard is CPALL, which has risen only 4% so far this year. The 7-Eleven operator is opening more stores and we could expect slightly better same-store sales growth after subdued first-half growth of less than 1%. With private consumption on the uptrend, we expect CPALL to report stronger results in the second half of 2017.
With all economic indicators looking better and fund flows continuing to improve, we view banks as another good choice for investors, particularly mid-size banks. TCAP saw net profit growth of 20% year-on-year in the first half and we expect favourable results in the third quarter. Although TCAP's share price has slightly outperformed the SET, we believe its shares are still worth accumulating.
Another mid-size bank whose fundamentals are looking better is TMB. Although its earnings were not as good as those of TCAP, its share price has outperformed the SET with a gain of 17% this year. However, we still see upside room for TMB in the short term.
Monchai Mokaranuraksa is head of research at Tisco Securities Co Ltd.
