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Thai bourse expected to run into Q4 headwinds

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Experts have said the Stock Exchange of Thailand is expected to face volatility during the fourth quarter of this year. AFP

Thai bourse expected to run into Q4 headwinds

The Stock Exchange of Thailand (SET) is expected to face volatility during the fourth quarter of this year due to the US presidential election and the SET’s zero plus tick rule, experts said.

Tisco Securities explained that the outlook for the Thai stock market this year was gloomy, especially during the first quarter when the SET fell from the highest at 1,850 in the previous year to the lowest at 969.

The index then rebounded to 1,400 in the second quarter before falling to 1,250 last week. The index this year still contracted by approximately 20 per cent compared to the previous year.

Considering transactions so far, foreign investors made net sales of 270 billion baht ($8.5 billion), but individual and institutional investors made net buys of 200 and 67.5 billion baht, respectively.

Tisco Securities senior director Apichat Poobunjirdkul expects the SET to fall at the beginning of the fourth quarter due to domestic and international negative factors.

He said: “Domestic factors include risk of political unrest when student-led protesters hold a big political rally in October this year and extension of the state of emergency, while international factors include the US presidential election, Covid-19 outbreak, and delay in the rollout of US economic stimulus measures.

“These factors will cause a decline in economic data and lead to mass sell-offs of stocks in the next two months.”

Meanwhile, he expected the index to rebound later in the fourth quarter, as the US presidential election would be over and cash flow direction would be more visible, while a Covid-19 vaccine would be ready and the improvement in listed companies’ profit are expected to be seen in the first quarter of next year, resulting in confidence among investors.

For investment strategy, he said investors should buy stocks with growth potential when the index falls to 1,250, such as food, healthcare and small-cap shares.

“The securities company aims to cut the index forecast for the end of this year to between 1,250 and 1,300 points from the current 1,400, while the index low and high are expected to be at 1,200 and 1,300, respectively,” Apichat said.

Capital Nomura Securities director of research and investment Koraphat Vorachet expects the SET to face volatility at the beginning of the fourth quarter, setting the index’s support line at between 1,150 and 1,200 and the resistance line at 1,330.

He said the market is preparing to deal with risks from the SET’s move to use the zero plus tick rule that allows investors to short-sell stocks at a price equal to the trading price from October 1 onwards.

“Currently, the SET uses an uptick rule that forces investors to short-sell stocks at a price higher than the trading price to mitigate volatility in the index, which helped reduce the value of short sales to 500 million baht per day from three billion baht per day before the Covid-19 outbreak.

“After the zero plus tick rule comes into effect, the value of short sales is expected to be equal to the value before the Covid-19 outbreak, but it depends on Thai stock market fundamentals and the country’s economic recovery,” Koraphat said.

He said after the result of the US presidential election is known, the Covid-19 outbreak and Covid-19 vaccine development would influence the SET from November to December, adding that there was no sign indicating foreign investors would invest in the Thai stock market.

“It depends on the economic recovery and listed companies’ performance whether Thai and other Asian indices would gain positive sentiment from foreign investors’ asset allocation after the US presidential election,” he said.

For investment in the last quarter of this year, he advised investors to pick stocks whose performance is expected to improve, such as export, food, beverages and electronic parts group.

“Also, investors should invest only 25 per cent in stocks during the market correction at the beginning of the fourth quarter,” Koraphat said.

He added that a few institutional investors would engage in window dressing at the end of the third quarter because they often do that in the middle of the year and the year-end.

Kitichan Sirisukarcha, from CGS-CIMB Securities (Thailand), expects the Thai stock market to face low volatility between 1,200 and 1,330 in the fourth quarter and move to 1,280 at the year-end because the market has always responded to positive and negative sentiments quicker than other markets, adding that listed companies’ third-quarter performance would be better than the previous quarter.

Also, he expected foreign investors’ net sales to hit a new high from the current high of 287 billion baht in 2018 due to lack of positive sentiment.

As investment strategy, he advised short-term investors to speculate on profits, and long-term investors to buy shares after the US presidential election.

“If the Covid-19 situation improves, we recommend buying retail, oil refinery and hospital shares,” Kitichan said.



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