Mr. Pornthep Jubandhu, SCBS Senior Vice President, Investment Strategy Department, Research Group, said global equities have rallied continuously since they bottomed out in early 2016, providing investors with a return of more than 50%. Given the economic conditions, a crisis signal has not yet been found, particularly in Asian stock markets and including the Thai bourse, where stock valuation is more competitive than in the US stock market.
The macro statistic data released recently by the Bank of Thailand (BoT) shows local spending and investment continuing to increase robustly, with signals that Thailand is entering a new round of the investment cycle, driven by state-supported infrastructure investment, the continued push for implementation of the Eastern Economic Corridor, and the digitalization of business organizations.
SCBS projects the SET might consolidate its position amidst external risk factors, but the index will eventually turn to rise based on domestic fundamental factors, which are expected to continue improving in 2019. The equity segment benefiting from an expected increase in capacity utilization through private-sector investment and FDI will give sound returns based on fundamental factors.
Mr. Pornthep noted that the global economy has signaled a slowdown, but it is not critical as many have feared. The world economy is on a recovery path for the second half of the upward economic cycle as can be witnessed by the International Monetary Fund's downward revision of the global economic estimate and its forecast of continued growth for the world economy, albeit at a slower pace following its peak in 2018. Although the upward economic cycle has proceeded for a decade since the financial crisis in 2008, it is likely to go further because overall economies around the globe have yet to overheat and inflationary pressure remains insignificant.
Another signal that this upward economic cycle will last longer than usual is the very slow policy interest rate hike by the United States Federal Reserve. The US central bank spent up to three years deciding to raise the policy rate periodically by 2%. Previously, it spent only one year doing that. Simultaneously, the central banks of most major economies have not yet raised interest rates. The European Central Bank (ECB) is likely to raise the policy interest rate in the 4th quarter of 2019. The Bank of Japan has not yet slowed the purchase of assets concretely, while China has eased its austere financial measures upon concern the economy will be affected by a trade war with the US.
Currency fluctuations in emerging markets are another key risk factor that must be monitored. However, Mr. Pornthep said that he did not expect the problem will escalate because the currency volatility is due to specific factors in some countries which lack financial discipline and depend too much on capital inflow as a result of quantitative easing measures. The economies of these countries might shrink when the US raises the interest rate. But for Thailand, the economy is unlikely to take the brunt of any currency fluctuation because the country has a large amount of international reserves, a small amount of foreign debt, a very high surplus in the current account balance, and a strong fiscal position.
SCBS also forecasts that the 4th quarter of 2018 will see Thailand enter a new round of the upward investment cycle. As of June 2061, FDI in the past 12 months totaled US$11.4 billion, the highest level since 2014. More FDI is likely to flow into Thailand, driven by state-supported infrastructure investment projects, investment promotions under Eastern Economic Corridor-related projects, and the expected relocation of FDI into this region due to a production base shift from China upon concern over the trade war with the US. In addition, capacity utilization in Thailand surged to 68%, the highest in 4 years, resulting in an increase in private-sector investment. More interestingly, the IMF made an upward revision of Thailand's economic growth estimate this year and next year, while decreasing the global economic growth forecast. With robust economic fundamentals, the company projected the SET index will hit an all-time high of 2,000 points in 2019 on an assumption of a price/earnings ratio of 15.6 times, bolstered by the upcoming general election and expected earnings per share growth of the market at around 8-10%, in tandem with strong GDP growth.
The upward investment cycle will boost demand for land in industrial estates, which will benefit stocks in this sector. Simultaneously, loan demand will also increase. This, together with the upward interest rate trend, will benefit stocks in the banking sector. Consequently, top picks are stocks in the industrial estate sector (AMATA, ROJNA, and WHA) and those in the banking sector (BBL, KTB, and TMB).
- Amata Corporation PCL (AMATA): The company benefits from the increased demand for land in industrial estates. Despite owning a large number of plots in the EEC, the firm plans to acquire additional land. With the plan, the NAV of the company is likely to rise further by around 13%.
- Rojana Industrial Park PCL (ROJNA): The stock price and valuation are still lagging. The company has accelerated acquiring additional land plots in the EEC. It is expected the move will boost the compound annual growth rate (CAGR) of 26% throughout the next 3 years.
- WHA Corporation PCL (WHA): The company benefits from implementation of EEC in terms of industrial estate and logistics businesses. The number of plots sold is expected to double. Its CAGR will be 16% in the next 3 years.
- Bangkok Bank PCL (BBL): The bank will benefit in terms of loan growth from the recovery of private-sector investment. The stock valuation is very likely to rise to an average rate since ROE will rise.
- Krung Thai Bank PCL (KTB): The bank will enjoy the minimum amount required for loan-loss provisioning, and its loan growth will accelerate. The stock valuation is attractive as the price per book value (PBV) is 0.87 times.
- TMB Bank PCL (TMB): The stock price underperformed by 20% in the banking sector year to date (YTD), but it is expected that fee-based income will outgrow other banks continuously and its NIM will pick up.