Daily Strategy for Investors on December 30, 2019 and Strategy for Jan. 2020

Kasikorn Securities (KS) has made an analysis for the trading session on December 30, 2019, pointing out some of the must-know events in the equity market as follows:

 

The DJIA again closed at another high (+24% YTD), driven by expectations that the Phase 1 trade deal will be signed soon and more details provided about the next stages of a negotiated truce to the US-China trade war, which would support a recovery in markets and the global economy next year. U.S. 10-year and 2-year bond yields remain positive (+26 bps currently) vs negative yields in August amid recession concerns.

Although the outlook for trade has improved, KS will need to monitor the progress of the next phases of the talks. In January, the Senate will vote on Trump’s impeachment. Although the Senate is likely to spare Trump, some investors may take profits to avoid risks, making the market volatile.

Next year, KS expects the U.S. government to roll out both fiscal and monetary policies to boost the economy before the election in late 2020.

After the rollover of SET50 futures series (which led to volatility last Friday), KS expects light turnover and “window dressing” buying on the last trading day of the year today. The SET Index is expected to trade between 1,573-1,590 points.

 

As for reports about Thai companies lining up to buy the regional assets of TESCO, retailers who have shown interest must consider the Trade Competition Act B.E. 2017 as to whether they would breach the “abuse of dominant power” article (exploiting competitiveness or monopolizing the market).

However, firms that are approved by the competition watchdog before the acquisition are exempted. If CPALL is a buyer, it may need to increase its capital, which would affect CPF as CPF holds 33.67% of CPALL and has a Net D/E of 1.4x (vs. its covenant of 2.0x). Meanwhile, BJC has a net D/E 1.18x (vs. covenant at 2.0x), so it may also need to increase capital to acquire TESCO.

 

Investment Strategy in January: KS expects the SET Index will remain volatile in early January on limited buying of SSFs. Meanwhile, foreign investors will wait for the Constitutional Court’s ruling on whether to dissolve the Future Forward Party. However, the downside should be limited by the trade deal signing and details about Phase 2 in January.

KS studied the performance of the SET Index in every 1Q since the 2008 financial crisis and found that it had generated a positive return in each of the past 10 years at an average of 6%. Meanwhile, the return from SETHD in the past five years was satisfactory, at around 7% (vs. the SET Index’s 4%). Based on our analysis, KS suggests investors accumulate stocks in January and take profit in April. Our top picks under this theme are PTTGC (Bt63.50), BCP (Bt31.50), AP (Bt7.50) and LH (Bt11.20)

 

Other recommended stocks include

1) those that will benefit from government measures: CPALL, BTS, ORI, TFFIF, STEC, CK;

2) Dividend plays: JASIF, TISCO, LH, TCAP;

3) ICT plays that will benefit from less competition (more revenues, lower costs): TRUE, DTAC, ADVANC, INTUCH;

4) Stocks that will benefit from IMO 2020: TOP, PRM, BGC, TASCO;

5) Stocks that will benefit from a recovery in Chinese tourist arrivals: AOT, ERW, MINT, CENTEL; and

6) Stocks with specific catalysts: CPF, GUNKUL, TPCH, JAS, OSP, TKN, MEGA, TU, GFPT, BDMS, IVL, RBF, MAJOR, PTT, PTTEP, BLA, JMT.