The Stock Exchange of Thailand experienced its most volatile week of the year, with gains and losses of more than 40-50 points, as did global bourses as a bank run led to the collapse of Silicon Valley Bank (SVB) and eroded confidence in US lenders.
The Fed and other regulators quickly moved in to guarantee all deposits and restore confidence, while major banks including Citigroup and JPMorgan injected $30 billion into another struggling lender, triggering a market rebound.
But there was more bad news in Europe where shares of struggling Credit Suisse plunged 30% amid fear of liquidity risk and bond mismanagement. It secured an agreement for emergency funds from the country's central bank but investors remain wary.
In Thailand, blue chips fell from a week ago on panic selling led by banking and energy counters. However, commerce stocks, based on domestic consumption, remain solid. Strong rebounds have also been seen in stocks with robust earnings prospects not affected by ongoing uncertainties, such as AOT, and small to medium-cap stocks benefitting from an earnings boost and fresh catalysts such as MENA and AURA.
Thai share movement will likely be less volatile this week as the market seeks to consolidate. Barring any fresh factors, the SET Index is expected to trade around 1,550, plus or minus 15 points.
We suggest that investors hold some cash and the remainder in value plays with clear earnings visibility or limited impact from global banking turmoil, such as tourism shares with secure income like AOT.
Investors should also consider local plays expected to receive an earnings boost from holiday spending and the election such as retailers like CPALL, building material merchants like GLOBAL and DOHOME, sellers of valuable assets like AURA, and those relating to construction like MENA.
Another factor to monitor is the upcoming Federal Reserve meeting on Tuesday and Wednesday, which will affect the interest-rate direction for the rest of the year.
The key risk in the market is contagion effect of US and European bank worries. Many parties expect limited impact and believe the issue will be quickly resolved and not lead to a crisis such as the one we saw in 2008, but investors should stay cautious.
Other asset classes including oil, gold and digital assets have also experienced surging volatility. Volatile fund flows have led to rapid exchange-rate fluctuations and will eventually hurt the real sector.
On the domestic front, political analysts generally expect a House dissolution as soon as Monday, with implications for party-switching by politicians who have yet to decide which banner to run under in the election due in May.
Barring fresh negative developments, the SET could stage a rebound as investors buy back beaten-down stocks once they see limited downside, no more serious incidents, and as confidence rises that the contagion effect will be stopped. This is simply because the market setbacks last week reflected worries beyond the actual impact.
Market participants also expect a less hawkish decision at the Fed meeting, as stress on US banks stems partly from interest rates that rose too high, too quickly. The latest survey suggests 65% of investors believe the Fed will raise its benchmark rate by just 25 basis points while 35% expect a pause. A week ago, almost 70% of investors anticipated 50-basis-point hike.
The rate view was suddenly shifted by the SVB incident after spiking bond yields forced it to sell bonds at a loss in order to raise much-needed liquidity.
