KGI Securities expected the SET Index to consolidate in February. Its upside could be capped by slower-than-expected vaccine rollouts and uncertainties on the US stimulus plan. Those issues could drive the US dollar higher and weigh on risk sentiment in Asian and Thai equities.
On balance, KGI calculations show that the SET Indexes downside has been limited after recent correction. KGI, therefore, reduced exposure to high beta, market plays and shift to mid-caps with strong themes like i) upbeat earnings outlooks and ii) benefiting from conditional economic re-opening.
February 2021: Shift to mid-caps during range-bound market
January model portfolio gained 4.6%, outperforming the overall market. During January, the Thai market saw high volatility, as a rally early in the year was followed by more global caution as COVID-19 vaccine expansion faced a few issues while the US economic stimulus approval may take longer than expected.
Meanwhile, KGI monthly model portfolio, which was a mixture of value big-caps and mid-caps in the consumer and finance space, gained 4.6%, stronger than the SET Indexes rise of 1.4%.
There were two top picks rallying more than 10%. KBANK gained 13.3% after reporting a very strong 4Q20 result and brighter credit cost guideline for 2021, while JMART rose 13% to reflect its benefit from the recent consumption boost.
Of note, only one stock pick under-performed the market and had negative monthly return; BBL was down 3.4% amidst mediocre earnings and heavier foreign equity outflows in the final week of January.
February market view: A month of range-bound trading
In February, KGI believed Thailand’s stock market will see range-bound trading. Market upside should be capped by i) investors remaining skeptical on the speed of vaccine distribution, ii) uncertainties on the size and approval time of US economic stimulus and iii) near-term resilience in the US dollar in light of global risk aversion and rebounding US bond yields.
On balance, local COVID-19 infections slightly improved, while a few KGI quantitative analyses hint that further price downside is limited after a noticeable correction in the past two weeks.
Net-net, KGI expected most of the major stocks to be locked in a narrow range. Also, this month is heavily loaded by non-financial earnings reports which could enlarge market volatility based on the tone of profit releases and 2021 guidance.
Therefore, KGI model portfolio for this month focuses more on mid-caps and less on the conventional market plays.
February stock picks: Given potential range-bound market, focus on mid-caps with themes like strong earnings and the economy re-opening
Given KGI monthly view for market consolidation, the analyst recommended investors focus on mid-caps with themes like i) strong 4Q20 result outlooks and 2021 earnings trends JMART, JMT, SPALI, ii) stocks that could benefit from the conditional economic re-opening to start in February; AU, SPA.
Meanwhile, for major names, KGI would be very selective this month and see only one tactical theme, the above-average free floats. Stocks like CPN and SCC could react positively if the SET starts its public hearing on the new Thai indices calculation formula.