In the past week, the Stock Exchange of Thailand rebounded to form a new base at around 1,590 points, midway between the 25- and 75-day moving averages.
The upward movement has been bolstered by more clarity about issues such as US inflation and the Chinese Communist Party Congress.
US inflation in September, while still high at 8.2%, was only slightly above market expectations, implying no negative surprise from the Federal Reserve; the market is already anticipating more interest rate increases, including another hike of 75 basis points in early November.
Meanwhile, Chinese President Xi Jinping has reiterated his party's stance on matters such as the zero-Covid policy, and a hard line on Taiwan and Hong Kong.
We have also seen some sector rotation from stocks for which earnings tend to have peaked (such as healthcare) to stocks trading at a steep discount, interest-rate plays (such as banks and life insurers) and firms with outstanding third-quarter earnings prospects.
In the coming week we expect the SET to move gradually higher as the new base firms. Between now and the middle of next month is usually the period prior to a large number of third-quarter earnings announcements by real-sector companies.
We recommend avoiding stocks with key overhang issues such as finance (higher cost of funds and regulatory risk) and focusing on those with potential positive surprises -- either robust earnings or performance not as bad as the market had anticipated. These could include IT retailers (COM7, JMART), insurers (TLI), energy firms (BANPU), and property developers (SIRI and LH).
Among the positive factors, we expect SET-listed companies under Bualuang Securities' coverage to report a combined net profit growth of 26% year-on-year in the third quarter. Excluding extra items, core earnings will likely jump 56%.
Sectors expected to register more than 40% growth in core earnings are retailers (solid customer recovery), industrial estates (higher land transfers), electronics (robust demand for data centre-related products), energy (higher sales volume, higher average selling prices and wider gross refining margins), and automotive (robust sales growth).
In the fourth quarter, earnings are expected to grow 21% year-on-year, led by tourism (along with arrivals growth), media (higher ad spending), electronics (robust demand for data centre-related products) and packaging (greater sales volume and wider margins).
We also note that local securities analysts have begun to revise up their 2022 earnings forecasts, with 12 of 18 sectors being upgraded this month. This reflects better market confidence about earnings for the remainder of this year.
On the external front, US preliminary third-quarter GDP will be released this week and the market expects 2% growth versus a 0.6% quarterly contraction in the second quarter.
China has delayed its release of third-quarter GDP until after the Communist Party Congress, but it is projected at 3.5%, after a 2.6% contraction in the previous quarter because of the impact of Covid lockdowns.
The baht, meanwhile, hit a 16-year low beyond 38 to the dollar again last week but the market is starting to look for it to bounce back. We expect the baht to gain ground in the remainder of this year on the back of an improving trade balance and a softer dollar.
If the market starts to see clear direction and the end of a rapid pace of Fed rate hikes, funds could start flowing out of the US market again and towards emerging markets with recovering economies.
Negative factors pressuring global markets include worries that major economies (the US and EU) will enter recession; the resumption of energy and commodity volatility in response to moves by major players including Opec, the US and China; the lingering Russia-Ukraine conflict; and actions by China, Taiwan and Hong Kong following the Communist Party Congress that could lead to unexpected situations.
