Market Recap: Thai shares tumbled this week, led by losses in big blue chips such as PTT, KBANK and SCB. TRUE also fell sharply in response to an arbitral ruling ordering the firm to pay compensation worth 76 billion baht plus interest to TOT Plc for a breach of contract relating to ADSL service.
Overall sentiment was pressured by negative external factors, including global risk from trade tensions and greater volatility in emerging market currencies.
Market outlook: We expect the SET index next week to swing between 1,665 and 1,725. We see a potential drop in September as fine opportunity to accumulate.
Negative factors: A Morgan Stanley study on the impact of a trade war expects global GDP growth to be trimmed by 21 basis points, assuming 10% or US$200 billion in tariffs on goods from China. Assuming a 22.5% tariff on European automobiles and a 10% tariff on Chinese goods, global GDP would be affected by 31bp. A 25% tariff on imports from both China and Europe would cut GDP by 81bp.
The economies of key trading partners in the supply chain will be affected, including those of Taiwan, Canada, South Korea and Mexico. Among industries that could be hit hardest are mining, electronics, wholesale trade, chemicals, machinery and equipment.
Fortunately, Thailand is expected to escape major harm. Considering both direct and indirect impact from the third scenario mentioned above, we found the Thai economy will barely be affected by US tariff imposition.
The US Treasury on Oct 15 is scheduled to issue an updated report on countries that Washington believes "distort" their currency value, with China the prime target. The US accused Beijing of letting the yuan slip more than it should have in the second quarter.
We also expect greater volatility in the foreign-exchange market on the back of the Turkish crisis and the contagion effect from Latin American economies (Argentina and Venezuela). This will slow inflows into overall emerging markets through October. Meanwhile, foreign funds traditionally take a breather around this time of year before reallocating their holdings for the following year, usually around mid-October to November.
Morgan Stanley's latest global stock market outlook recommends that investors park funds in markets with low beta. It expects a bearish tone in both emerging and developed markets throughout next month.
We have already detected negative signs from steep declines in the Argentine and Turkish bourses amid weak economic conditions and extreme sensitivity to a global liquidity squeeze. Such losses will likely generate negative viral impact on other emerging markets as well as developed markets.
Thanks to Thailand's relatively stronger economic condition, we believe the SET will suffer less impact than its peers from the coming global down cycle.
Positive factors: We see improving clarity on the election roadmap after Deputy PM Wissanu Krea-ngam said the government was preparing to unblock activities by political parties, paving the way for them to campaign starting in December for an election that could be held as early as Feb 25.
The market interpreted the signals from the annual retreat of Federal Reserve deep thinkers in Jackson Hole, Wyoming as dovish. Fed Chairman Jerome Powell essentially said: "Let's wait one more meeting; if there are clearer signs of inflation, we will start tightening."
Inflation in the financial market is not a present threat. We expect the Fed to raise its rate another 25 basis points at its Sept 27 meeting, but also anticipate a softening tone on future rate direction for the rest of the Fed meetings this year.
Wikij Tirawannarat is the senior vice-president of Bualuang Securities Plc.