The SET began the week by moving sideways up to hit the 1,640 resistance and continued to trade sideways for most of the week. Gains were led by blue chips that were the targets of foreign players amid rising inflows. Foreign investors have piled up over 100 billion baht in long positions on the Thailand Futures Exchange (TFEX) so far in August.
Meanwhile, second-quarter earnings of listed firms grew 26% year-on-year and 14% quarter-on-quarter, beating market expectations by 6.9 percentage points amid pent-up demand from the reopening of the economy and hefty gains in crude oil price during the second quarter. Excluding extra items, core earnings would have surged 75% year-on-year and 41% quarter-on-quarter, beating our expectation by 21 points.
The three sectors that registered the strongest earnings growth year-on-year were transport, media and energy. The bottom three performers were contractors, industrial and agricultural sectors. The sectors that beat expectations by the biggest margins were tourism, electronics, petrochemicals and food, while contractors were the biggest disappointment.
For the coming week, we expect the market to move sideways to sideways down in the range of 1,640 to 1,615 or 1600. Investors are expected to take profits from blue chips and to cover short or open short position on SET50 firms after persistent gains.
The market is also awaiting key economic indicators including the US purchasing managers' index (PMI), revised second-quarter GDP and core personal consumption expenditure (PCE) -- the Federal Reserve's favoured gauge of inflation -- for July.
However, we foresee more funds flowing into mid- to small-cap stocks for which there are specific catalysts, such as tech plays and new S-Curve businesses that were dumped amid mounting macro worries earlier.
NEGATIVE FACTORS
After global equities rallied for over a month, we anticipate some profit-taking and a short-term correction. But markets are not expected to hit a new low; rather, we expect to see consolidation as investors lay the groundwork for further gains.
We expect the Thai market to be under pressure and to consolidate from late August to mid-September. Should we encounter a flood of negative factors during that time, the SET could fall off key support levels and investors should then be extra cautious.
Local politics will also carry more weight as all eyes are now on an expected Constitutional Court ruling on when Prime Minister Prayut Chan-o-cha's eight-year term started. The market might not be overly worried about this factor but it could trigger short-term volatility.
On the geopolitical front, investors should continue to monitor the Russia-Ukraine war and pay more attention to developments in US-China relations, particularly as regards Taiwan. The latter situation is rather fragile but still appears manageable. If the various players continue on the current path, we do not expect it to escalate into confrontation with violence.
POSITIVE FACTORS
Second-quarter earnings of US and Thai listed companies were not as bad as the market had feared. Key costs appeared to have peaked in the second quarter including crude oil (now heading south), along with transport and key food commodity inputs such as wheat and cooking oil.
Since prices of goods and services have been rising gradually, any rapid drop in businesses' costs in the second half of this year could mean gross margins will quickly widen, particularly in the food sector.
Macro factors could have both positive and negative implications. According to preliminary data, US GDP contracted by 0.9% in the second quarter compared with the first. If the revised figure does not show a steeper contraction, investors' confidence will be bolstered. The market estimates US core PCE in July rose 4.7% year-on-year (0.3% month-on-month), down slightly from 4.8% year-on-year and 0.6% month-on-month in June.
Locally, with second-quarter earnings now in, companies have begun meeting with analysts to discuss their results and the business outlook. We expect most to provide positive signals for second-half performance.
Since second-quarter results were not as bad as expected, some upward earnings revisions are possible. Supportive factors include lower costs, a rapid recovery in tourist arrivals and a jump in hotel occupancy -- now approaching break-even level -- which will boost spending in tourism provinces, particularly during the high season in the fourth quarter.
Meanwhile, the baht has begun to appreciate after a long period of excessive weakness, which is positive for the overall market, especially for importers. IT equipment importers in particular will benefit from a firmer baht as the product launch season for major brands like Apple is approaching. However, excessive baht strength could reignite market worries about the competitiveness of exports.
