External factors will determine SET momentum

Foreign funds have continued to flow into the Thai stock market (and other emerging markets) over the past two weeks, pushing the SET index past the 1,700 mark.

Gains were led by big banks like KBANK, BBL and SCB and energy players like PTT, PTTEP, TOP and OR, as well as blue chips with specific catalysts like ADVANC (on energy sector entry projects). data centers), AOT and MINT (global tourism recovery), EA (measures to promote electric vehicles), ZIGA and UPA (crypto-mining plans).

During the last week of February, we expect the SET to move sideways in the 1,690-1,720 range. We expect the blue chips that have benefited from the recent surge to consolidate then that investors are waiting for new macroeconomic factors, signals of tightening from the Federal Reserve and developments related to the tensions surrounding Ukraine.

We expect small- to mid-cap stocks to outperform, especially those that are off their highs and have yet to rebound strongly; those whose promising results in the fourth quarter of 2021 and the first quarter of 2022 could lead to upward revisions to earnings forecasts; and those with specific catalysts. Among them are RCL, PSL, LEO, III, ECL and SABUY.

Positive factors: We are seeing signals of reopening in many countries, which will eventually generate more positive sentiment for tourism players, including CENTEL, MINT and ERW, as well as aviation players (AAV and AOT), and further stimulate jet fuel sales by TOP.

According to external surveys in markets such as the United States and the Maldives, hotel occupancy rates have rebounded significantly, along with average revenue per room, a key industry metric. This reflects an upward trend in hotel business both in terms of footfall and price (discounts are shrinking), which will indeed strengthen the sector’s profitability.

Despite a high daily number of coronavirus infections above 16,000, severe cases and death rates have been far lower than in previous waves. Covid-19 may well end up becoming an endemic disease that will have less weight in the market.

Investors should closely watch the Fed’s interest rate decision at its March meeting, as economists agree that a 25 or even 50 basis point hike is very likely. The Fed’s anticipated tightening will be positive for banks (allowing them to continue to recover and stay at elevated levels), insurers (with substantial fixed-income investments in their portfolios) and credit companies. lease, especially small and medium players who have not charged still high lending rates, such as ECL.

We are also expecting further outperformance from maritime transport (RCL and PSL) and freight forwarders (LEO and III) in anticipation of a rebound in freight rates (containers and bulk) in March. The hiccup in freight rates in February has been attributed to the Lunar New Year as well as China’s drive to reduce air pollution ahead of and during the Winter Olympics by ordering cuts in some activities of the ‘heavy industry.

Negative factors: It is now certain that the Fed will raise interest rates throughout this year and also embark on so-called quantitative tightening – reducing its balance sheet – in the near future. If inflation, now at 7.5%, continues to rise after a rate hike and strong price pressure leads to economic shocks or surprises, funds could flow out of capital markets into safe havens. and drag the SET back below 1,600.

Overall, we expect macroeconomic issues, including interest rates, bond yields and inflation, to continue to fuel market volatility throughout the year.

Geopolitical tensions are also gaining weight, in particular the Russian-Ukrainian conflict which could degenerate into war. Based on the recent developments, there have been both positive and negative factors that might affect the market.

While Russia has tried to show the world it is withdrawing its troops by posting photos of tanks leaving Crimea, the US and NATO remain suspicious and believe Moscow still has more than 150,000 troops stationed near the Ukrainian border.

Shirlene J. Manley