Still pressured, but support expected to bring it back up
Although the SET is still pressured by tension in the Middle East and the weak baht, which pulls funds out, support at 1430 and 1435 is seen to be a turning point. The Vayupak Fund and the Energy sector, driven by higher oil price, are expected to support the index. Resistance is between 1450 and 1460.
Today’s highlights
- 99% of GULF shareholders approved a merger with INTUCH and acquisition of ADVANC and THCOM securities for over Bt89bn. The process is expected to be completed with a new company name by April 2025. The focus will be on renewable energy, digital, data, and cloud businesses.
- The Deputy Minister of Finance says economic stimulus measures will continue to be introduced through the year, possibly in the form of tax measures and spending incentives. GDP is expected to grow by 2.7% this year, including the effects of the Bt10,000 handout to vulnerable groups.
- Tensions in the Middle East continue to support oil prices due to concerns about global oil supply. Reports say the US President is discussing potential attacks on Iranian oil facilities with Israel.
- US Services PMI for September rose to 54.9, the highest since February 2023, indicating a strong US economy. Initial jobless claims increased to 225,000 last week, higher than expected.
- The BoE Governor signalled a potential proactive interest rate cut if inflation continues to fall. Financial markets expect two 25bps rate cuts by the end of this year.
- The Richmond Fed President believes it may take longer than expected to bring inflation back to the 2% target, which could hinder interest rate cuts. At the next meeting on November 6-7, he would support a 25bps rate cut if unemployment and inflation remain stable.
- The Minister of Finance, after discussions with the BoT Governor, say 4Q24 inflation is expected at ~1%, potentially falling below the 1-3% target range for the year. Further discussions are planned to find ways to bring inflation back to the target range.
Strategy today
In the short term the SET is expected to move sideways up but may face profit-taking after sharp rises in stock prices as well as external factors. The market will be boosted by the start of the cyclic downtrend in interest rate (Finance and BoT to discuss this week), government stimulus. The SET is expected to surge if funds flow into banks, Property, Electronics and tourism-related stocks; stocks offering good returns are expected to continue to perform well. However, US and China PMIs are expected to slow down. Our strategy is “selective buy”.
Trading today
The SET is expected to move sideways up but may face profit-taking in stocks that have moved up sharply as well as on external factors. We recommend “Selective Buy” with four main themes:
- Stocks expected to benefit from the Vayupak Fund. We highlight stocks in SET100 that have: 1) good dividend yield of at least 3.5%, 2) SET ESG Ratings between A and AAA and 5-star CG and 3) a strong financial position, with profit expected to grow in 2025 – KTB, BBL, BCP, ADVANC and HMPRO.
- Desire to speculate in stocks poised to benefit when the interest rate cycle starts down - Leasing (MTC TIDLOR), Property Development (AP SIRI), Commerce (CPALL), Utilities (GULF) and REITs (LHHOTEL and DIF).
- Desire to speculate in stocks benefiting from flood repairs – HMPRO, GLOBAL, CPALL, BJC, DCC and TASCO, with data showing an average return of 5% for those speculating from mid-Sep to early Nov in years with La Nina.
The baht appreciation in 3Q24 will hurt companies that are primarily exporters, and we suggest avoiding these stocks in the near term: TU, GFPT CBG and KCE. Those who want to speculate on companies that benefit from baht appreciation may choose AAV, GULF, GPSC and BCP.
Daily top picks
PTTEP: The high oil price is a short-term catalyst for price: it has underperformed oil price so far, yet it is a way to hedge against tension in the Middle East. Profit and balance sheet are still strong. 2024 core profit is expected to be Bt82.7bn, growing 5%. Recommend buy for trading at not higher than Bt135/share.
CPALL: 2H24 profit is expected to grow YoY and outperform its sector. 3Q24 profit is expected to grow YoY and QoQ, supported by higher sales and margin in CVS businesses and CPAXT. 4Q24 is expected to be the best quarter in 2024 as it is high season; valuation is attractive, trading at 2024F PER of 25x (-2SD).
