Energy Sector Underperforms SET Index in 2021, J.P. Morgan Expects to See Growth in 4Q

As the market starts to recover from Covid-19 outbreak, the energy sector is still underperforming SET Index in 2021. J.P. Morgan expects strong growth for the sector in 4Q.

The Thai stock market has been on a rise as of late. Despite a slight plummet in today’s session, the SET Index is still well above the support level, while historical data shows that foreign investors are more interested in Thai stocks than usual.


J.P. Morgan expected positive returns for all ASEAN markets in 2021, while reiterating overweight on Thailand, Indonesia, Singapore and Vietnam after an outstanding 2Q21 earnings performance that beat its estimates by 5%.

J.P Morgan cautioned that 3Q21 earnings would be unexciting for most of the ASEAN markets due to the wide range of lockdown measures to curb the resurgence of Covid-19. However, the firm believed equity markets were largely priced in weaker earnings with a more positive outlook on 4Q21-1Q22 earnings as most countries are ramping up vaccination and would likely reach 50-60% inoculation by the end of this year.


As for Thailand, J.P. Morgan noted that listed companies in SET50 Index reported with aggregated 2Q21 revenue rose 29% when compared to the same period last year (YoY), while NPAT jumped 91% YoY, beating expectations by 17%.

During the period, most sectors other than energy and utilities reported stronger-than-expected earnings. Still, J.P. Morgan revised earnings expectations down for all sectors, except materials and energy sectors that were upgraded.

In addition, J.P. Morgan reiterated that reversal of earnings spread led by vaccines, reopening, stronger foreign exchange, support fiscal/monetary policy, light positioning of investors and the outflow from the Chinese market will boost ASEAN equity markets for the next 3-6 months.


Following the analysis from J.P. Morgan, Kaohoon International has noticed foreign investors have been net buying Thai stocks in August for a total of 5,439 million baht and continuing to do so in September for another 2,917 million baht as of September 6, 2021. Still, the fund flow in 3Q is in negative territory due to a net sell of 17,020 million baht in July, resulting in a current deficit of 8,664 million baht.


Meanwhile, SET Index PE ratio is still relatively compatible with other ASEAN markets. As of September 3, 2021, the PE ratio of SET Index is 21.02x, compared to 26.28x for Malaysia in August, 22.77x for the Philippines, 53.66x for Singapore, and 12.73x for Indonesia.


The energy sector and construction material sector, though in positive territory this year with a gain of 5.57% and 16.38%, respectively, still underperform other sectors such as HW and ICT that rose 20.02% and 19.34%, respectively this year. Meanwhile, SET Index is 13.73% higher this year.


As SET Index still has a lower PE ratio when compared to other stock exchanges in the region, and the way foreign investors have been net buying Thai stocks as of late, there could be some light in the two sectors J.P. Morgan mentioned about.

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