Volatile trade on the Stock Exchange of Thailand this week reflected investor reaction to news events, with the SET index moving in a range from 1,570 to 1,610 points.
The index climbed early in the week to nearly 1,610 points, the highest in 2.5 years, as global equities responded to news of a US-Iran peace deal, which dragged energy prices down. Easing inflationary pressures and future interest rate trends pulled down US bond yields and drove up tech plays, leading gains in the US, Korean, Taiwanese and Thai bourses.
However, profit-taking later kicked in and pared gains. At midweek, the US Federal Reserve meeting sent a "hawkish hold" signal, implying that interest rates will likely remain at high levels, with a potential increase around the year-end. This factor triggered global stock consolidation, but the SET remained resilient with stock rotation supporting buying interest. Towards the end of the week, sentiment was bolstered by the signing of the US-Iran peace deal.
This next week, the SET index will likely continue to move sideways in a range of 1,550 or 1,570 to 1,620 points. Thai shares are starting to show more sustained upward momentum than their peers on many global bourses. We have detected a sector rotation pattern with modest selling in electronics counters and buying in commerce and finance plays.
Tactically, we encourage investors to gradually accumulate domestic plays, but not to go all-in as happened with power producers, which drove decent gains in the sector. There could be more stock rotation from electronics shares, which have already seen a good run-up, to consumption and hospital plays, which triggered rebounds last week in stocks including MTC, SAWAD, KTC, HMPRO, CRC, OSP, CBG, ICHI and BH.
All told, we see opportunities but there's no need to rush. We prefer to wait for additional signals such as the second-half earnings outlook, cyclical recovery of certain industries, and supportive factors for individual plays. Selected stocks may be chased up along with the market, but we prefer to preserve funds to speculate on alpha plays in the next round.
INFLATION WATCH
Following recent crude price consolidation, we have to monitor the impact on inflation, which has risen over the past 2-3 months, as the impact has not yet been fully passed on to core inflation. How that plays out could influence the prospects for a year-end rate hike by the Fed.
The CME FedWatch tool now shows the possibility of a move as early as September, implying lower bond yields and financial costs for companies.
However, crude prices might stage a technical rally along the way after recent steep drops. If the Middle East situation does not change, beyond the occasional verbal threat for negotiation purposes, it could be time to start accumulating stocks again.
Next month we will see earnings previews and the beginning of the quarterly reporting season, starting with banks at mid-month. We expect banks to perform well based on solid fee income. The market usually speculates on mid-year dividends, with net buying interest in banking shares in June and July.
Energy and commodities will likely follow, with earnings in the second quarter peaking because of earlier oil price spikes, though potential stock loss towards the end of the quarter could ignite volatility. We do not recommend these sectors, but see low-end stocks as a better place to park funds under the current circumstances.
Lastly, investors are awaiting parliamentary consideration of the fiscal 2027 budget to see details of public projects, as well as how the government intends to spend 200 billion baht on energy transition schemes, which we expect to be mainly for solar rooftop and electric vehicle (EV) promotion initially. This would bolster contractors such as GUNKUL, while also creating positive momentum for EV plays (KGEN, ASAP, MGC) and auto lenders (TTB, TCAP, TISCO and KKP).
The key negative factor pressuring Thai stocks is technically tight valuations of thematic stocks, especially electronics, industrial estates and contractors. This means any negative development could trigger a steep sell-off in these stocks and drag down the overall market. Factors to watch include:
resurfacing concerns over US tech stocks and an AI bubble, and
a potential rebound in oil and gas prices due to unexpected causes, which may not involve war but rather economic measures.
An example of the latter could be the potential resumption of EU sanctions on Russia once Middle Eastern oil supply starts returning to the market.
