Daily Strategy for Investors on August 10, 2020

Krungsri Securities (KSS) released an analysis for the trading session on August 10, 2020, indicating the essential events in the stock market as follows:

 

Market Recap

The SET Index lost 9 points (-0.7%) to close at 1,324 in Bt44b turnover. The index tracked regional losses amid rising US-China tension after the US proposed to delist Chinese firms that fail to comply with US regulations by 2022. The US also wants to ban US businesses and citizens from conducting business transactions with ByteDance (which owns TikTok) and WeChat.

Foreign investors were net sellers of Thai shares at Bt1,036m, net long TFEX SET50 at 19 contracts, and sold net Bt267m worth of Thai bonds.

 

Market Outlook

KSS is neutral towards the market today, expecting the SET Index to hover at 1,315 – 1,335. Sentiment would be bolstered by healthy US non-farm payrolls for July (1.763m jobs, beat expectations), lower unemployment rate of 10.2%, and optimism the US$1tn relief package will be approved soon. However, a fresh round of US-China conflict following the US call to ban US businesses and individuals from transacting with TikTok and WeChat, coupled with lower oil prices still-rising the number of Covid-19 cases, will weigh on the market. There may be sell-on-fact activity following the release of 2Q20 results, which could trigger market volatility.

 

Investment Strategy Selective Buy

– Stocks with positive 2Q20 growth prospects: TOP, SPRC, BGRIM, CPF, TU, ASIAN, TASCO, STA, STGT, AP, PRM, PTL, AJ, TQM, JMT, CHAYO, PTG, BCH

– Electronics (KCE, DELTA, HANA, SVI) – stronger sales of electrical equipment supported by WFH and 5G trends, and softer baht tone.

 

Recommend stocks

BCH (BUY/IAA Consensus Bt17.80 vs Bt0 close) – expect solid 2Q20earnings due to limited exposure to foreign patients than BH and BDMS (expect to report weak results). The majority of BCH’s patients are social security members (recurring income). Revenues from conducting Covid-    tests will offset softer income in other segments.

TASCO (BUY/Max IAA Consensus Bt32 vs Bt28.50 close) – trading buy in anticipation of turnaround in 2Q20 to Bt1.4-1.5b net profit from Bt784m net loss in 1Q20. Earnings would be boosted by NRV reversal because the bitumen price has doubled since 1Q20. Strong demand from China to repair roads following a devastating flood will support sentiment in 3Q20, as sales to China normally accounts for 40% of TASCO’s exports.

 

Today’s Highlights

– US-China conflict continues to pressure sentiment: Tensions rose again last week after the US called to delist Chinese firms that are unable to comply with US regulations by 2022. Trump also ordered to ban TikTok and WeChat applications in the US in 45 days. Last weekend, the US also issued sanctions on a dozen Chinese and Hong Kong officials, including HK Chief Executive Carrie Lam. Retaliatory moves by Beijing could dampen overall investment sentiment.

– Trump signs executive orders to extend economic stimulus and Covid-19 relief measures to end of 2020: This was after Congress failed to agree on a fresh package. However, there are arguments that Trump’s orders might be illegitimate because Congress normally authorizes economic stimulus and development projects.

– Watch for sell-on-fact activity in the 11th hour of 2Q20 results season: Thai listed firms must submit 2Q20 results to the SET by Aug 14. There may be sell-on-fact and portfolio adjustment activities, especially involving mid- and small-caps which have run-up recently. Negative surprises could also trigger selling to adjust portfolios. Stocks that are anticipated to report weak results (i.e. hotel, spa, airlines) will remain under pressure until there is a vaccine or Covid-19 is contained, and the country reopens borders to foreign tourists.