The benchmark SET index slid more than 30 points on Monday before consolidating around 1,420 to 1,430 as selected stocks and sectors gained. Monday's hefty sell-off was triggered by events in the Middle East as Israel's retaliation against Hamas ignited worries that the situation may escalate and drag other groups into the conflict. Oil prices surged in tandem with rising geopolitical tension.
Certain stocks were pressured by specific factors while some sectors registered strong gains. Investors dumped Hana Microelectronics (HANA) following a private placement announcement, while some unloaded JMT Network Services (JMT) and Srinanaporn Marketing (SNNP) after some analysts revised valuations lower amid less bullish growth prospects.
Contractors rallied after the cabinet gave the green light to bidding for a double-track railway extension to Nong Khai, while oil plays rose with crude prices.
In the coming week, the index should gradually climb back towards 1,470 points and consolidate around that level as pressures from the past week start to ease. Market participants will tend to shift their focus to short-term earnings. Banks are expected to report fine results, which may inspire optimism about companies in the real sector as well.
However, we emphasise a “selective buy” strategy at a time of fragile market sentiment, focusing on stocks with limited downside risk to earnings, a robust profit outlook, or those safe from market volatility such as industrial estates, healthcare and transport shares. Among the positive factors:
– The monetary tightening trend is slowing. The US Federal Reserve is expected to pause at its policy meeting on Oct 31 and Nov 1, though it might raise interest rates once more before completing the upward cycle. From now on, expect more talk about potential rate cuts next year. This will be positive for overall sentiment as funds could gradually flow back into equities. The Bank of Thailand is believed to be finished with hiking rates, which should have a limited impact on the economic recovery.
– Cautious optimism in China. The People’s Bank of China has cut its loan prime rate and signalled further stimulus. Investors will watch the monthly purchasing managers’ index update to see if it bounces and can stay above the 50 mark, which could signal an improvement in the economy of the world’s biggest production base.
– Prices of many commodities, particularly petrochemicals, along with freight rates have started to decline, easing inflationary pressures. However, unrest in the Middle East could trigger a short-term bounce.
– Thai foreign reserves remain robust while the US dollar has eased. Thus, the baht could gain ground and become firmer towards the end of the year.
– The Finance Ministry may adjust conditions for the 10,000-baht digital wallet scheme by making payments to low-income earners only. This would reduce the cost of the programme from the current estimate of around 550 billion baht, easing concerns about public debt that have weighed on investor sentiment in recent weeks.
Among potentially negative factors, there is still a chance the Fed will maintain strict monetary policy and raise rates further if US inflation eases more slowly than expected, while other economic indicators, mainly the labour market, remain robust. This would be considered a negative surprise because most market participants now believe inflation is on a downward trend.
– More policy rate hikes in turn could affect the stability of the financial system. We saw earlier this year how some banks went bust, while other problems could follow the potential reversal of monetary policy ahead.
– Geopolitical risk escalating from the Israel-Hamas war, wider Middle East tension and the NATO-Russia-Ukraine conflict.
– The global economy is exposed to slowdown or recession risks, particularly in the EU and emerging markets with high foreign-currency debt, from prolonged high inflation and steep rises in interest rates.
– Low domestic economic recovery with inadequate stimulus measures. Key policies (such as the digital wallet) have triggered concerns over fiscal risk, mounting public debt, the country’s sovereign rating and bond yields. Investors await more clarity.