The Stock Exchange of Thailand was hit hard in September, losing almost 100 points from its mid-month peak to close at 1,589.51.
The index started the month at 1,638.93 points and climbed steadily to 1,672.64 by mid-September. However, the market was hammered after the US Federal Reserve signalled that it may take more aggressive action in fighting inflation, including more big interest-rate hikes. Subsequently, the SET pulled back throughout the rest of the month and ended September at 1,589.51, down 3% from the end of August.
Trading volume also declined by 1.4% to just 69.7 billion baht a day in September. A key factor behind the weakness, besides Fed signals, was the sell-off by funds, both domestic and foreign. Foreigners were net sellers in September of more than 24 billion baht while local funds sold 5.5 billion baht worth of shares.
But even with the September sell-off, foreign investors still booked a net-buy position of 150 billion baht for the first nine months of the year. Nevertheless, for the first 12 days of October, they continued to be net sellers of another 6 billion baht.
We also note that the baht depreciated heavily in September, reaching 38 to the dollar, from just 36 early in the month. The baht has yet to regain ground, staying around 38.
Globally, sentiment has soured in recent weeks with the Dow Jones index trading below 30,000 points nearly every day for the past three weeks, approaching bear-market status, and the Fed raising its terminal interest-rate target, as it has done multiple times in the past six months, this time to between 4.5% and 4.75%.
In Thailand, the Monetary Policy Committee in late September raised its policy rate by another 25 basis points to 1.00%. While the hike was relatively small, the central bank did cut its GDP growth projection for 2023 from 4.2% to 3.8%. The 2022 forecast is unchanged at 3.3%. The reasons cited were increasing inflation and weakening global economic conditions.
Backing up this view, the International Monetary Fund has revised down its world GDP growth forecast for 2023 from 2.9% to 2.7%, keeping its 2022 prediction steady at 3.2%. Thailand's economy has a slightly stronger growth outlook as we are still in recovery mode. In fact, we believe the fourth quarter will mark an inflection point for the SET and the Thai economy.
COVID RECEDING
October began with a number of Covid-related restrictions for tourists being lifted and a shift in the classification of Covid-19 to a treatable endemic condition. The country saw 1.4 million tourists in September alone and expects up to 2 million per month in the fourth quarter. Our hosting of the Apec meeting in November will further enhance the tourism sector.
Moreover, we believe that next year, tourist arrivals will jump to 22 million from less than 10 million this year. Though this is still much lower than the pre-Covid level of 40 million, it represents a commendable rebound.
In addition, we look forward to the general election that will take place no later than May next year. This is particularly important for equities as the SET usually generates a rally around six months before an election is to take place. As such, we expect the index to fare well in the second half of the fourth quarter.
Our investment strategy this month taps a variety of themes. Our picks include BANPU, BBL, BDMS and BEM.
We have chosen BANPU as the mining and energy group should announce record third-quarter earnings from the rise in coal prices and solid operations in gas and electricity as well. With demand picking up as we enter the winter season and gas prices high, demand for coal has increased significantly. Prospects of the Russia-Ukraine war dragging on for a while also mean demand for coal will stay high. We expect Banpu's full-year profit to jump to almost 36 billion baht, a record high.
In the banking sector, BBL should announce good results on the back of improvement in the domestic economy. We expect third-quarter profit to grow 13.3% year-on-year on better non-interest income and improving loan growth from offshore and corporate loans.
Moreover, after the latest policy rate hike, BBL followed increased its deposit and key minimum lending rates. The higher loan rates will push up profit by 6-7% in 2023 from our current forecast. Further upside to profit of more than 10% is possible if the central bank's key rate rises to 1.5% from 1.0% currently.
MEDICAL TOURISM PLAY
For a tourism theme, we have chosen BDMS as the hospital operator will benefit from the anticipated rise in medical tourism. Its revenue from foreign patients is already at 95% of pre-Covid levels. With the lifting of remaining tourism restrictions in October, we expect foreign patients to drive revenue for the rest of the year. Although its revenue related to Covid has declined, revenue from normal treatment grew 25% in the second quarter and should continue to grow in the second half. We thus expect profit for 2022 to climb 33% year-on-year.
BEM also fits the post-Covid reopening theme. In September, its expressway users made 1.15 million trips per day and MRT ridership reached 392,000 trips per day (up 7% month-on-month and 253% year-on-year), reaching the pre-Covid level. The reopening of the Queen Sirikit National Convention Center station, meanwhile, will boost MRT ridership to the next level as the centre is almost fully booked with events throughout the rest of this year.
BEM also has two new projects awaiting inclusion in its portfolio. The first is the Orange Line (Bang Khun Non-Minburi) which the company expects to add up to 100,000 riders per day when the project is complete, as it will pass through the inner city and connect with the Blue Line.
Another project is the South Purple Line (Tao Poon-Rat Burana), covering 23.6 kilometres and 17 stations. BEM is bidding to manage this project and if it gets the contract, it would add up to 2 billion baht a year to its revenue.
