Thai stocks pulled lower last week before rebounding midweek. Shares of Delta Electronics rose after its weighting was raised in the influential MSCI Thailand Index, easing concerns about the impact of revised free-float requirements. After that, the SET corrected slightly.
However, the main issue was earnings announcements, which were not met with the normally expected market behaviour. Stocks of companies with decent profits were being sold even without prior speculation, such as TFG, KCE and GULF. Some others saw gains for just one day before pulling back sharply, such as TIDLOR, ITC and THCOM.
Investors should remain cautious about refinery and petrochemical businesses, even though prices have not consolidated much yet, as post-war trading themes will shift and their influences on the market have faded.
This week, the main issues are likely to be the Middle East war, as peace negotiations and attempts to reopen the Strait of Hormuz remain stalled. Any violence could affect market consolidation, though this time around it is more likely to be triggered by inflation worries.
Signs are emerging of market expectations that the US Federal Reserve might not just hold interest rates but raise them in 2027 should price pressure escalate beyond expectations. Year-on-year inflation in April was 3.8%, beating market expectations of 3.7%.
EARNINGS GUIDANCE
Locally, analysts' meetings will have more influence on individual stocks, because investors are waiting to hear what companies think about the impacts of the Middle East war and energy costs on their plans, and any possible earnings guidance adjustments.
Any company that is able to provide a rational explanation on impact management, with a stock price that is still at low level, may stage a rebound. On the other hand, any company that admits difficulties in risk mitigation planning could see a stock price overhang.
Companies that could surprisingly benefit from the situation include industrial estates with relocation themes (WHA, AMATA), and power producers positioned to benefit from the country's energy restructuring policy (GUNKUL, GULF). The result could be adjustments to their valuations even before earnings materialise.
Looking at the overall outlook, we expect the market to move sideways in the range of 1,480 to 1,540 points. Momentum will tend to be driven by individual stocks rather than market movement. We could see more sector rotation than broad-based buying or selling.
The positive catalysts that the market is waiting for at the moment seem rather abstract. Companies with narratives that align with the core of current investment cycle, as opposed to seeing temporary gains, will be among the first to be re-rated by analysts.
We are looking at electronics and industrial estates, which could see new waves of private investment, particularly because of relocation by investors looking to reduce exposure to geopolitical and trade conflicts.
As well, the acceleration of public investment projects is expected to have more impact on market sentiment than it did under previous governments going back to the Palang Pracharath Party. With a fresh look, potential for projects to actually materialise, and better stability, the stage could be set for massive investment.
INFRASTRUCTURE BOOST
Although the Land Bridge project remains uncertain, we believe the current government will be able to push other infrastructure projects such as motorways, high-speed and double-track rail, and airports. In all, this will be positive for contractors while banks could also enjoy benefits should the government also push for public-private partnerships.
On the external front, we think the market may be overlooking positive economic data in the region, such as the 43.7% surge in South Korean exports during the first 10 days of May amid solid chip demand. Exports to China, South Korea's largest trading partner, jumped 81.8% year-on-year. The outlook is further boosted by the US purchasing managers' index (PMI), which is still in expansion mode with positive new order growth.
Among negative factors, we continue to look at selling pressure amid tight valuations, war-related issues, and a potential new round of trade concerns should US-China tensions re-emerge.
Investors should also keep eyes on local politics. Although the government seems to be in control of the situation, politics is still as uncertain as the stock market.
