InnovestX reveals investment strategies for 2023 with SET Index targeted at 1,750 points
InnovestX believes that economic activity will continue to deteriorate in 2023 due to a gradual increase in interest rates, which increases the likelihood of a recession in developed countries such as the United States and Europe. The company anticipates that the Federal Reserve will slash interest rates in 2023 as demand is expected to decline, resulting in a dollar depreciation.
This will boost emerging markets such as the Thai stock exchange, which is anticipated to profit from capital inflows. In addition, the Thai economy is still on the path to recovery from domestic consumption with economic stimulus measures as a supporting factor, as well as positive expectations for China's reopening in 2Q23. However, InnovestX is cautious about economic growth and earnings prospects in 2023, as well as rising risks to financial stability. The company suggests investing in top equities in 1Q23 which will gain from China's reopening and the reviving Thai economy, namely AOT, BBL, BCP, CPALL, and MINT.
Innovest X Securities Co., Ltd. Research Group Managing Director Sukit Udomsirikul, said that during the transition period between 2022 and 2023, the world economy will exhibit three traits. To begin with, global economic growth will slow down dramatically, and the economies of developed and emerging markets will evolve differently, with the former potentially experiencing severe stagflation or at least a moderate recession. However, there is less likelihood of a severe recession in EM economies, but growth will decelerate. Second, global inflation is predicted to peak, especially in the US and EM nations, and to decline from a high base in 2023 as global demand decreases as a result of the economic slowdown. Third, Asian countries, including Thailand, are expected to continue raising their own interest rates, which means that the policy interest rate is already too high to accommodate heating inflation. Accordingly, we forecast a fundamentally driven SET Index of 1,750 points for the first quarter of 2023, with significant buying points in the zone of 1,500-1,600.
Thai markets will react favorably to China's policy easing in 2Q23, when it is anticipated that the country will reopen because Chinese tourists account for the majority of Thailand's tourism income and help drive net foreign inflows. Due to the ongoing energy crises and stricter monetary policy, the Eurozone will face stagflation in 2023, with economic activity declining. It is expected that inflation will continue to be over the target rate throughout 2022 and 2023. Inflationary pressures in the Eurozone, however, are likely to rise at a faster rate than previously anticipated. Exports, investments, and government expenditures will all likely slowdown in 2023, dragging down the Thai economy relative to 2022. There will be some cushioning from the worldwide economic recession thanks to the strong performance of the tourism, service, and domestic consumption sectors.
Thailand’s GDP growth will peak in the first quarter, at roughly 4%, before decelerating in the second half of the year and ending almost at 2% in 4Q23 due to 3 main reasons. First, exports will decrease as the global economy slows even further in the second half of the year. Second, while private consumption will play a significant role in propelling the economy forward, other factors like private investment and government spending will decline, both for consumption and investment. This is because the worldwide economic downturn and the slow pace of government projects’ disbursement. Third, it is projected that the tourism sector will be a major engine of economic growth, with between 21 to 25 million foreign tourists visiting Thailand, the majority of whom will remain on short haul rather than long-haul trips, generating less revenue for the nation.
Investment strategy: Under the pressure of prolonged tight financial conditions in 1Q23, risks associated with global recession, declining earnings, and financial stability are growing. The economy is still showing indications of slowing down. However, given the robustness of the U.S. economy and greater risk aversion, the dollar will continue to appreciate before reaching its top. By the end of 1Q23 to the beginning of 2Q23, the economy will likely have stabilized. In light of China's reopening and robust domestic demands, we see opportunities to increase our position. InnovestX recommends stocks with healthy balance sheets and cash flow, profiting from China's reopening, with increasing and recovering earnings and high growth potential. AOT, BBL, BCP, CPALL, and MINT are the top picks for 1Q23.
Summary of investment issues of individual stocks:
- AOT: It is anticipated that the company will gain from China's reopening and government tourism incentives, which will fuel domestic market growth. In 2023, the company's earnings outlook will experience a significant turnaround.
- BBL: With a planned rate hike from 1.25% to 2% in 2023, the Thai economy is poised to resume its recovery. The banking industry stands to gain from a declining US dollar because of the resulting changes in capital flows.
- BCP: With the reopening of China's markets, an uptick in demand is anticipated, which is projected to drive up commodity prices. Furthermore, it is a passive company which pays out solid dividends, both of which assist in cushioning the blow of market fluctuations.
- CPALL: Domestic consumption will expand at a rate far above market predictions. Sales will continue to improve thanks to government economic stimulus measures, and the company will see more growth during the 2023 election.
- MINT: The company is anticipated benefitting from China's reopening, reduced energy costs in Europe, and a rebounding food market, aided by government economic stimulus initiatives. In addition, MINT's stock valuation is 15-20% below those of its peers.
