Trade on the Stock Exchange of Thailand (SET) was volatile this week, in line with global bourses, on renewed trade war worries.
After China announced tighter curbs on rare earth exports, President Donald Trump threatened to slap an additional 100% US tariff on Chinese goods. There was speculation Trump might decline to meet with Chinese President Xi Jinping when the two attend the Apec summit in South Korea on Oct 31 and Nov 1.
In our view, both countries are engaging in limited tactical escalation rather than aiming for a full-out conflict. We expect them to enter a “narrow deal” phase or reach a temporary agreement ahead of the Apec talks, with no major structural shift in the trade relationship over the long run.
We still anticipate a meeting between the two leaders, but any rebound in sentiment will depend on their stances and the level of agreement achieved.
Markets did hear some encouraging words from Federal Reserve chairman Jerome Powell, who said the US economy was healthy overall and left the door open to more interest rate cuts to help stimulate activity. He said the Fed might soon start winding down its effort to shrink its balance sheet.
Over the past week, we recommended investors take a more cautious approach by reducing their stock position and increasing cash holdings to at least 30% of their portfolios. We also suggested trimming holdings of stocks linked to the global economy in sectors such as energy, refining and petrochemicals, electronics and shipping.
However, some domestic plays, particularly tourism stocks, also fell substantially with the end of Golden Week and a rapid slowdown in the momentum of Chinese tourist arrivals.
Shares of Thai Airways were pressured by concerns over new board appointments, which dragged its stock price below a key support level. The board’s chairman assured the market the political interference that once plagued the carrier would not resurface.
Elsewhere, tech stocks in China and Hong Kong were pressured by concerns over potential imposition of non-tariff barriers against tech products. Meanwhile, a recent rebound was partly responsible for selling pressure in tech plays as investors sought to lock in profits.
Gold kept hitting new highs on consistent buying by central banks and safe-haven demand spurred by renewed trade war worries, even as concerns about actual wars eased slightly with the Gaza ceasefire.
We expect the SET index to remain rangebound between 1,250 and 1,300 points next week. Market participants will likely shift their focus towards particular industries or individual stocks as banks are about to release third-quarter earnings.
Bank stocks have largely declined in anticipation of weak results (except for KTB, which will likely post solid gains from investment in THAI). We believe banks have already priced in negative factors and see potential to buy on dips.
As well, any shift in fund flows into Thailand, after a recent steep fall, could be directed into banks if earnings worries dissipate, while non-banks could be affected by escalating trade tension.
Power industry plays are also interesting as government measures, expected within a month, tend to be positive for power producers. These include speeding up foreign direct investment by streamlining procedures; progress on direct power purchase agreements and a new Power Development Plan, which should help the Board of Investment meet its goal of attracting up to 500 billion baht worth of data centre projects.
Meanwhile, worries over a power tariff cut will probably not add more pressure than they already have, given the recent stock price setbacks in the sector. We prefer laggards such as GULF, BGRIM and GPSC over EGCO, BPP and BCPG, which have rather tight technical indicators.
Among the positive factors that could support investor sentiment this week:
The government’s Half-Half Plus co-payment consumption stimulus is due to start on Oct 29 and continue for the rest of the year;
Chinese GDP data due on Monday is not expected to be any weaker than already anticipated, implying the impact from US tariffs has been contained so far;
US economic indicators, as slowing price pressure and softer employment data could support another Fed rate cut;
Thai bank earnings are expected to be in line with modest expectations, barring any negative surprises.
Among the negative factors that investors should keep in mind:
Pressure on the local market from the large-cap DELTA, which could be weighed down by high valuations and sell-ahead-of-facts behaviour prior to its third quarter earnings release on Oct 24;
US-China trade friction;
Volatile commodities and foreign exchange may cause certain groups of investors to remain in wait-and-see mode.