THAILAND

This week, external situations, particularly the European debt crisis, remain major factors for the SET Index's movement.

From February to April 2012, PIIGS (Portugal, Ireland, Italy, Greece and Spain) are required to repay the highest amount of debts in the year. These debts are estimated at 225 billion euros (Bt9 trillion) for three months combined.

Focus is on the operations for the debt repayment. Governments in several euro-zone countries are offering new bond issues for refinancing. If there is news that the offer is fully subscribed with not too high a coupon rate, stock markets will give a positive response. On the contrary, if the offer is not fully subscribed and the coupon is high, these will pressure stock markets. However, positive and negative news is expected this week.

Another factor for monitoring is progress on management of the Financial Institutions Development Fund Bt1.14-trillion debt. Focus will be on the impact on the commercial banking sector. ASP Research expects earnings-per-share growth of the commercial banking sector to slide to 7.9 per cent in 2012, from the previous estimate of 14 per cent, if there are developments proposed by the Bank of Thailand as presented in news during last week.

This will put pressure on the SET Index.

The energy sector, which weighs the most capitalisation in the Thai exchange, is expected to be volatile due to oil prices, which are driven by developments in Iran and movement of the US dollar.

Such surrounding factors, coupled with stock selling by foreign and local institutional investors, could put the SET Index under pressure this week.

Investment strategy for this period is to select investment stocks with positive factors. Stock pick is SIRI. SIRI is estimated to show its operating profit of over Bt630 million in the fourth quarter of 2011 on expectation of high dividend payment. Its dividend is forecast at Bt0.11 a share.

Kavee Chukitkasem

Assistant managing director

Kasikorn Securities

Last week, saw the Thai stock market go up slightly. Early last week, the stock market factored in good news from Europe after Fitch Ratings announced that it would not cut France's credit rating. Italy and Spain had successful bond auctions, while the US economic figures were positive with lower-than-expected unemployment number.

However, late last week, the Thai stock market started making a correction due to local factors. Concern over the transfer of the FIDF's debt-management oversight to the BOT and the US Embassy warning of a possible terrorist attack in Bangkok prompted selling by foreign investors. Daily trading on the exchange was relatively thin, meaning cautious investment by most investors.

Next week is expected to see the market go zigzag up with a resistance level of 1,063 points and support level of 1,040 points. There may be speculation on progress in resolution of the European debt problem from meetings late this month (European finance ministers during January 23-24 and European leaders on January 30).

Clarity on the FIDF's debt management oversight transfer to the BOT and banks' earnings announcement could prompt speculation on banking stocks after big losses last week.

Concerns over the European debt problem still remain a pressure point for the stock market in the first quarter, despite short-term easing, due to the colossal amount of debt for auction in the Europe, including not only Italy or Spain but also the European Central Bank, which has to compete in the auction. Based on the current situation, a success for the bond auctions may not be easy.

Besides, Thailand's economy is likely to see a sharp contraction in the fourth quarter of 2011 and that could drag listed companies' profits even lower than expected. We suggest investors to only speculate.

Technically, if the SET Index falls below 1,040 points, this would be a negative sign. Speculation may be focused on banking stocks like KTB and SCB, investment-theme stocks like KSL, CPF, HMPRO, HEMRAJ and BCP, and high-dividend stocks like TTW, BAFS, INTUCH, MAKRO and ASP.

Tisco Securities

We have raised our end-2012 SET target to 1,160 points from 1,000, based on the 10-year historical average 12-month forward price earnings of 10.9x, using earnings per share (EPS) for FY13E, which will represent the forward year at the end-2012 time horizon. Our 2012-13E SET EPS compound annual growth rate of 14 per cent is also in line with 10-year historical average earnings growth of 13 per cent, albeit with the reduction in the corporate income tax rate, from 30 per cent to 23 per cent then 20 per cent, giving a helping hand to growth in 2012 and 2013.

Global external factors appear more favourable than Thai domestic drivers as regards directional impact on the SET and global cyclical big-cap constituents in 2012, in our view. Foremost, the onset of monetary loosening in China brings to mind China's 2008-09 lending spree, during which the SET surged 71 per cent. Meanwhile, US recovery is gaining traction with the return of credit expansion, while the risk of liquidity runs on European banks has been reduced following the November 30 US Fed measures.

By contrast, domestic drivers in 2012 are broadly weaker. First, the balance of payments has swung into deficit from reduced bond inflows and the collapse in rubber prices, resulting in falling forex reserves, the change in which closely tracks the SET performance. Second, farm-income growth will likely turn negative in 2012 with the rice-pledging scheme fiscal transfers to the farm sector not enough to offset the collapse in rubber and other crop prices. Third, loan growth has halved from 20 per cent to 10 per cent in the past 2-3 quarters for a much reduced money multiplier.

As such, we generally favour global cyclicals over domestic plays. Among the big-cap sectors we like are energy and petrochemicals. We also prefer selective stocks in the telecom, hotel and contractor sectors. Less-preferred big-cap sectors are banks in view of a poor 2012 combination of slowing loan growth, net interest margin contraction, and rising credit costs, and commerce where high-teens earnings growth has been discounted in strong relative out-performance and mid-20s PE valuations.