Foreign funds have continued to flow into the Thai stock market (and other emerging markets) over the past two weeks, driving the SET Index to breach the 1,700-point mark.
Gains have been led by big banks like KBANK, BBL and SCB and energy plays like PTT, PTTEP, TOP and OR, as well as blue chips with specific catalysts such as ADVANC (on plans to enter the data centre business), AOT and MINT (global tourism revival), EA (EV promotion measures), ZIGA and UPA (crypto mining plans).
In the final week of February, we expect the SET to move sideways in the 1,690 to 1,720 range. We expect blue chips that enjoyed the recent run-up to consolidate as investors await fresh macro factors, Federal Reserve tightening signals, and developments related to tensions surrounding Ukraine.
We expect small- to mid-cap stocks to outperform, particularly those that are off their peaks and have yet to stage a strong rebound; those with promising fourth-quarter 2021 and first-quarter 2022 results that could lead to upward earnings forecast revisions; and those with specific catalysts. Among them are RCL, PSL, LEO, III, ECL and SABUY.
Positive factors: We are seeing reopening signals in many countries, which will eventually generate more positive sentiment for tourism plays including CENTEL, MINT and ERW as well as aviation plays (AAV and AOT), and spur more jet fuel sales by TOP.
According to external surveys in markets including the US and Maldives, hotel occupancy rates have bounced significantly, along with average revenue per room, a key industry metric. This reflects an uptrend in the hotel business both in terms of traffic and pricing (discounts are shrinking), which will effectively bolster the sector's profitability.
Despite high daily coronavirus infection numbers above 16,000, severe cases and mortality rates have been much lower than from previous waves. Covid-19 could well end up becoming an endemic condition that will have less weight on the market.
Investors must closely monitor the interest-rate decision by the Fed at its March meeting, as economists agree an increase of 25 or even 50 basis points is highly likely. The anticipated Fed tightening will be positive for banks (allowing them to rally further and stay at high levels), insurers (with substantial fixed-income investments in their portfolios) and leasing firms, especially small and medium-sized players that have not been charging high loan rates yet, such as ECL.
We also expect shipping (RCL and PSL) and freight forwarders (LEO and III) to outperform again in anticipation of a rebound in freight rates (both containers and bulk) in March. The hiccup in freight rates in February has been attributed to the Lunar New Year as well as China's drive to curb air pollution before and during the Winter Olympics by ordering cutbacks in some heavy industry activities.
Negative factors: It is now certain that the Fed will raise interest rates throughout this year and also embark on so-called quantitative tightening -- reducing its balance sheet -- in the near future. If inflation, now at 7.5%, continues to shoot up after a rate hike, and severe price pressure leads to economic shocks or surprises, funds could flow out of capital markets to safe havens and drag the SET below 1,600 again.
In all, we expect macro issues including interest rates, bond yields and inflation will continue to fuel market volatility all this year.
Geopolitical tensions are also gaining more weight, especially the Russia-Ukraine conflict that could escalate into war. Based on recent developments, there have been positive and negative factors that could affect the market.
While Russia has tried to show the world that it is pulling back troops by releasing photos of tanks leaving Crimea, the US and NATO remain suspicious and believe Moscow still has over 150,000 soldiers stationed near the Ukraine border.
