All eyes on US debt ceiling talks
The focus remains on the US debt ceiling. Last week, both the World Bank and IMF came out to cut their GDP growth estimates for several countries. Most downward revisions went to Asian countries including China and India.
Thailand’s growth forecast was also revised down. The IMF expects the Thai economy to grow 3.1 per cent in 2013 and 5.2 per cent in 2014. The World Bank cut its forecast for Thai economic growth to 4 per cent in 2013 and 4.5 per cent in 2014.
Asia Plus Research revised down its Thai listed companies’ earnings growth estimate to 14.7 per cent in 2013 from 23 per cent. Earnings growth is expected to be 12 per cent in 2014.
EPS growth is projected at Bt97.64 in 2013 and Bt109.46 in 2014. Under such conditions, the current market P/E at the SET Index of 1,450 points stays at 15.3 times, relatively high and with limited upside risk.
There are two issues for this week. One is the progress of the bill for the Finance Ministry to undertake Bt2-trillion in borrowings. Recently, it passed its first reading in the Senate and is under the second reading. If no extension is made, it will pass all three readings before October 23. And the act will be complete.
But if there is a petition for the Constitutional Court to review the act, there will be a delay in its legal announcement. It is expected that the opposition will request the Constitutional Court to review whether the act goes against Article 169.
We expect that during the legal process, there could be some stimulus to buy construction stocks for speculation. Stock picks: STEC ([email protected]), PYLON ([email protected]) and SYNTEC ([email protected]).
Another issue is the US debt ceiling extension, which has brought about budget deficits for a long period. Based on ASP Research’s data, in the past 50 years (1963-2012), the US ran a budget surplus for only five years and borrowings rose for the remaining 45 years. This has led to the debt ceiling extension now. There’s a point that the current debt ceiling is higher than US GDP and this is the limit.
If the US debt ceiling is not extended by October 17, the US will be in trouble with its debt repayment and several problems including default risks and a likely downgrade of its credit rating will follow.
On August 5, 2011, S&P downgraded the US’ credit rating from “AAA” to “AA+”, dragging the Dow Jones Industrial Average down by 22.5 per cent over three months – 10 per cent in the 10 days before the downgrade, 5.5 per cent on the day of the downgrade and 7 per cent over the next two months and a half. The SET Index also slid over 20 per cent during the same period.
This week, short-term speculation is recommended without increasing stocks in portfolios for medium- to long-term investment. Stock pick: AOT (FV@Bt240).
Kitpon Pripisankit
Vice President – strategist
Kasikorn Securities
The SET Index fell early last week after the US showed no progress in the draft budget for 2014. This led to concerns that Congress might not agree on extending the debt ceiling by the deadline of October 17. And the US could confront a debt default for the first time.
In the middle of the week, the SET Index rebounded after the US president proposed Federal Reserve vice president Janet Yellen to head the Fed. Markets now expect the Fed not to reduce its monetary stimulus programme in the FOMC meeting at the end of this month. The fed funds rate is expected to remain low.
The negotiations on the 2014 budget and the debt ceiling extension between the Republicans and the US president looked to reach an agreement before the deadline, which boosted global stock markets and the SET late last week.
This week, the SET Index is expected to move with volatility, driven by both internal and external factors. In the country, markets expect to see a policy-rate cut in the October 16 MPC meeting and speculation may be seen in interest-sensitive stocks like commercial banks, property operators and hire purchase operators.
There will be financial-performance announcements of banks for the third quarter. We expect KTB and SCB to report outstanding results.
The external factor is the prolonged negotiations over the draft US budget and the US debt ceiling extension. However, we expect the impending announcement of Yellen, who promotes monetary easing, as Fed chairman to become an assurance against risks for global capital markets and to limit downside risks.
We expect the SET Index to move in the range of 1,440-1,500 points and, probably, higher if the US issue ends with a satisfactory result. We recommend stocks that are expected to release satisfactory third-quarter earnings results (banking, energy, petrochemical sectors), are cheap and remain laggards.
Stock picks: KTB, SCB, KKP, PTT, PTTGC, TOP, ESSO, TPIPL, PS and SPALI.
