As yesterday’s trading amply
demonstrated, the Thaksin Shinawatra case before the
Constitutional Court will be the major factor driving the Thai
stock market over the next month. The SET index rose 10.74 points,
or 3.4%, yesterday, in heavy turnover, led by the banking
sector’s 6.4% gain.
Investors turned more confident
that Thaksin will be exonerated based on the groundswell of
support for the premier, recent positive opinion polls and the
fact that he now intends to testify in front of the court during
closing arguments next Monday. Legal exports say the court could
very easily justify the exoneration on the grounds that
Thaksin’s failure to disclose all of its assets was not
deliberate. We also believe that the chances of Thaksin’s
acquittal have increased to about 60:40 from last week’s 50:50.
One reason for our change of view
is the appointment of Chao Saicheua, former chief justice of the
Constitutional Court, as chairman of the Thai Asset Management
Corp. Another reason why we are more optimistic in Thaksin getting
off the hook is the mounting campaign by prominent Thai citizens,
including senators, human rights activists and former cabinet
ministers, to rally public support for Thaksin. This public
pressure appears to be working, with farmers groups, police and
military officers recently coming out in support of Thaksin.
At this point, investors should be
very mindful of the potential risks and rewards of the Thaksin
verdict and be prepared to position their portfolios accordingly.
We could see the index rise to a
high of 350 within the next month in the event of a positive
outcome. We wouldn’t expect the market to stay long at this
level, however, until the market is supported by some positive
economic data.
The negative consequences would be
the SET index’s retreat below 300. The degree of the fall would
be determined by the election of an acceptable prime minister and
a smooth transition. We see 280 serving as a key support level.
Investors should also be aware that
the verdict could come out anytime after the closing arguments on
June 18. A couple of weeks ago, the Constitutional Court had
warned that it may need as long as a month to deliberate the case.
Banking stocks good for a one-two
day trade, but don’t ignore the fundamentals
Yesterday, investors rushed to buy
banking shares. The big, liquid banking stocks, which had been
sold down over the last week, is typically the sector that
investors go to during a knee-jerk reaction. The banking sector
moves and so goes the market.
Arguments can be made that the
banking sector would benefit the most from a stable political
environment. Certainly, the banks don’t need political worries
on top of rising NPLs and negotiations on the form and functioning
of the TAMC. But, at this point, we are still recommending that
investors UNDERWEIGHT the banking sector, as we cannot
ignore the sector’s deteriorating fundamentals. The better banks
are Bangkok Bank (BBL) and Siam Commercial Bank (SCB).
Telecom sector also
needs stable political environment for passage of key measures
Political stability is also key for
the telecom sector, which is waiting for the passage or approval
of several important measures, including concession conversion
terms, the appointment of the National Telecom Board and the
privatization of the Telephone Organization of Thailand (TOT) and
Communications Authority of Thailand (CAT). We recommend investors
to OVERWEIGHT the telecom sector due to relatively strong
fundamentals even in the current weak economic environment. Our
favorites are Advanced Info Service (ADVANC), Shinawatra
Satellite (SATTEL) and TelecomAsia (TA).
