Daily Strategy: Nomura Cautions on Big-Cap Stocks over Upcoming FTSE Rebalance

Stocks in Asia traded mostly lower on Thursday after U.K. inflation rose to a nine-year high and Australia is looking to counter China by forming an alliance with the US and UK for technology development.

 

Thailand’s SET Index opened at 1,634.31 points, increased 6.27 points or 0.39%.

As of 10:18 local time in Thailand on September 16, 2021, Nikkei dropped 0.59%, Shanghai Composite fell 0.24%, Hang Seng Index plunged 1.22%, IDX Composite slipped 0.1%, while Australia’s ASX 200 rose 0.87%.

 

Yesterday, U.K. inflation jumped to a nine-year high in August and at a faster pace with consumer prices rising 3.2%, compared to the same period last year and after a 2% rise in July. The 1.2 percentage point increase is the sharpest for the U.K. since the Office for National Statistics first took the record in 1997.

Meanwhile, Australia Prime Minister Scott Morrison on Thursday is expected to announce the formation of an alliance with the U.S. and the UK for technology development in a move to counter China.

 

Mr. Koraphat Vorachet, Capital Nomura Securities’ strategist, through “Kaohoon Jor Talad Program” on September 16, 2021, stated that the energy stocks should be able to support the market, but the uptick in Covid-19 cases might post a negative sentiment to the market.

Mr. Vorachet, noted that FTSE Rebalance will weigh down Thai stocks at a value approximately 1,500 million baht, which could pressure big-cap stocks at the end of today’s session.

As for the low free-float stocks that distorted the Thai stock market outlook, Mr. Vorachet commented that he believed the committee is still looking into the free float adjustment measure. If implemented, there should be a huge impact on DELTA, followed by AOT, GULF and OR, while BBL, SCB, SCC, KBANK, BDMS, CPALL and PTT will benefit from the adjustment.

As for today’s investment theme, Mr. Vorachet recommended BANPU due to higher coal and neutral gas prices, coupled with weakened Thai baht, giving a support level at Bt12.40 and Bt12.20 and a resistance level at Bt13.10 and Bt13.40 per share.

During the uptick of Covid-19 cases, Mr. Vorachet expected BCH to recover, while estimated JMT to be added into SET50.

In addition, the rising BDI should give a positive drive to shipping stocks amid short supply from hurricane season. As for the refinery stocks TOP, BCP and SPRC should be positive in the long run.

The analyst gave a support level at 1,620-1,611 points and a resistance level at 1,637-1,642 points.