Outlook improves as traders await big fund buys

The Stock Exchange of Thailand has broken through the 1,400-point resistance level this month and continues to climb, with consolidation at times. Blue chips such as ADVANC, GULF, banking and healthcare plays have continued to lead the gains since mid-August.
Buying has diversified, with the medium-term market breadth indicator rising substantially from 31% at the beginning of the month to near 55% in mid-September. A reading above 50% indicates investors are more active and more willing to trade mid- and small-caps in addition to blue chips.
Domestic factors bolstering market momentum have included the formation of the new cabinet and the government’s policy declaration emphasising economic stimulus and megaprojects. These factors, combined with the cheap valuations of many Thai shares, have boosted investor confidence.
A market breadth indicator that reaches the bullish zone usually gains momentum towards 80% before a major consolidation emerges. Therefore, the Thai stock market should enjoy robust sentiment until late September or early October, backed by both fundamentals and tactical factors.
On the fundamental front, the stock market will benefit from a series of stimulus measures and buying interest in stocks with solid performance outlooks during the earnings preview season. In the fourth quarter, year-on-year performance will partly be supported by the relatively low base in the fourth quarter of last year, when the government’s fiscal budget was delayed.
THAI RATE CUT POSSIBLE
Investors also see a greater chance for the Bank of Thailand to cut interest rates in October, narrowing the Thai-US rate gap now that the Federal Reserve has made its move. A case can be made for the need to mitigate foreign exchange risk as the baht has strengthened significantly.
On the tactical front, Vayupak Fund 1 will start trading Thai shares from October. Should market consolidation occur during the month, money injections from the fund could lend support and propel the market.
As the year-end approaches, the market also anticipates more liquidity from Thai ESG funds than in the previous year because the tax perks have been made more attractive.
Existing catalysts should encourage more buy-in and stock rotation, which will push the benchmark index towards the 1,500-point resistance.
However, global market risks tend to intensify from late October. We will explore these in more detail next month, so enjoy the ongoing market upswing for the time being. Among the supportive factors for the Thai market:
On the external front, most factors seem bearish, but there still are some buffers against a global slowdown such as a relatively stronger financial sector in comparison with previous economic crises.
Key negative factors include US and global economic risk that could turn into recession, though it could be mild and brief.
Considering the economic cycle and leading indicators, particularly US employment and consumption, which are weakening, we foresee risks during November and December and urge investors to invest more cautiously.
Factors to watch include the US services purchasing managers’ index if it falls below 50. Non-farm payroll readings have been weakening, in tandem with declines in full-time employment and rises in part-time employment. Lower US savings and higher credit card debt are also a concern.