Saturday, August 23, 2008

Market mood improves as inflation worries ease


Market mood improves as inflation worries ease


There seems to be a sigh of relief in the stock market as it is now becoming clear that inflation will not rise into double digits this year as earlier feared. And while the political situation has not improved, it seems to have come to a standstill, says Poramet Tongbua, Tisco Securities' head of research.

This means the Thai bourse's performance should be fine in the short term, especially when one factors in a decreasing global inflationary trend on the back of oil prices that have dropped from a record high of $147 in July, albeit with a small spike this week.

Inflation in Thailand rose to a 10-year high of 9.2% in July, up from 8.9% the previous month.

Although US inflation continues to be high with prices rising by 5.6% in July, Wall Street is taking events in stride, he believes. Stocks are gaining ground as the asset class of choice in the eyes of American investors because bond yields have dropped and the prices of several commodities have also undergone a needed correction.

While this is encouraging, looking back one cannot fail to notice that many regional stock markets have dropped by as much as 20% since the beginning of the year. ''This is a clear reflection of economic slowdown and inflationary pressure and if you think it has reached the bottom, it has not where the economy is concerned because this is only just starting to slow down.''

Mr Poramet sees signs that economic conditions will get worse in the US, EU and Japan. The bite will be sharper in the EU where the slowdown is just starting while the US has been coping with problems for some time now. Japan is only just beginning to follow the trend.

However, the slowdown of key global economies could last three to four quarters. Former Fed chairman Alan Greenspan had said that he expected the US housing market to reach the bottom in the middle of next year. ''This is an important factor because when the mortgage market bottoms out it will lead to the bottom of the financial market becoming visible,'' said Mr Poramet.

Even under these shaky circumstances, Thai exports continue to shine, with the growth over the past seven months averaging 23%. But Mr Poramet does not expect this to be sustainable and anticipates that the annual rate to be around 16-17%, a tad less than 18% recorded last year.

While exporters continue to do well, these global developments do mean that earnings and incomes will deteriorate in Thailand and some companies might follow the example of Thai Airways International and offer early retirement to their staff.

However, Mr Poramet is not too worried about layoffs because they are unlikely to have a big impact on the overall economy in light of the tight local job market where the unemployment rate stands at 1.6%.

As for the current government's economic performance, Mr Poramet considers it to be fine but thinks it could have done better.

He does expect the Bank of Thailand to increase its policy interest rate at its next meeting on Aug 27, barring government intervention.

Commercial banks, on the other hand, are strongly driven by market factors and as there is brisk competition, depositors can expect higher rates.

Tisco Securities expects two sectors, consumption and banking, to benefit from continued decreasing inflationary pressure.

''Housing too should see a sizeable number of people returning to buy to go by the sales figures of several listed companies that were still good in the second quarter. The outlook for the third quarter is also not bad at all.''

Mr Poramet expects property prices to track the rise in commodity prices and climb by 3-5%. ''This will help developers maintain their margin up to a point.''

Among other sectors, entertainment looks promising because when consumption bounces back, advertising spending will pick up. ''Although advertising spending has slowed down, if we look at TV channels 3 and 9 it seems they are able to attract a good amount of advertisements. The second half is also the high season for advertising spending.''

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