The Thai stock market continued to head north during the past week, with the benchmark SET index testing 1,640 points on persistent inflows. Better than expected earnings bolstered sentiment on global bourses as the recovery mode turned towards a broadening market.
Throughout the week, market-dominant stocks shifted from banks and blue chips to energy and petrochemicals, as well as stocks with earnings upgrade potential. Domestic factors including progress on direct power purchases, data centre investment and energy measures continued to be medium-term drivers.
Middle East uncertainty continued to weigh on sentiment, but the impact tends to be limited as investors emphasise fundamental factors and earnings more.
UPSIDE SHRINKING
We expect the SET index to move in a range of 1,600 to 1,650 points in the coming week and remain on a general upward trend. However, we are starting to see limited upside after the recent rally that largely priced in positive factors.
We recommend investors shift strategically from chasing run-up stocks to take profits from market outperformers and rotate to "second-tier" plays or laggards.
Among factors to watch next week are the earnings of domestic and global firms, developments in the Middle East that will affect energy price movements, and US trade policies. At home, investors should monitor the impact from recently announced energy measures and updates on data centre investment, which remain medium-term drivers for power and industrial estate shares.
In terms of strategy, investors should gradually take profits from first-round market leaders, especially those helped by fund flows that have high valuations, such as those in the banking and electronics sectors.
We recommend accumulating laggards with potential for earnings upgrades. We prefer finance-leasing, consumption, healthcare, retail and IT retail plays, which could be next-round buying targets. Tourism stocks could also gain from a recovery in Chinese tourists, increased flight frequency and domestic tourism stimulus.
INFLOWS AND UPGRADES
Persistent inflows remain a key positive factor. Earnings upgrades, previously concentrated in energy and electronics sectors, are broadening with profit forecasts for the SET rising by 0.4% over the past month, while the proportion of upgraded stocks to downgrades has started to turn positive.
Another supportive factor is the tourism recovery, with arrivals in the week to July 11 rising 5.4% from the week before to 562,454. Thai-China flights in July jumped 9.5% year-on-year and 24.5% from the previous month.
On the risk side, as the SET index approaches 1,600-1,650 points, we see limited upside and expect further gains to rely more on selective buying than across-the-board increases. Investors should monitor second-quarter earnings as results that fall short of expectations could trigger stronger selling pressure than usual.
In addition, US trade policy uncertainty, geopolitical risk in the Middle East and US monetary policy direction could ignite fund flow volatility and affect investment sentiment at times.
