The SET Index moved sideways amid softer turnover this week as many investors started to move to the sidelines ahead of the March 24 general election. We expect Thai shares to continue in a sideways/sideways-down pattern for another week before staging a post-election rally.
Positive factors: As polling day draws closer, political parties continue to introduce new campaign pledges to capture more attention from voters. But investor confidence in the results remains low amid signs of an unclear outcome.
Based on historical data, the SET Index surges by 8% on average within 10-20 days after an election from its pre-poll bottom. The preliminary breakdown of winning constituency MPs and party list members should be known within a day of the vote, with negotiations to set up a new coalition to follow shortly afterward.
A peaceful poll and signs that the next government will be able to run the country smoothly will lift investor confidence and trigger buying sprees. But the SET may lose the chance to recover if the new government appears likely to struggle.
Post-election outperformers: We expect conventional heavyweight blue chips (proxies for each industry) to drive the overall market higher after March 24. Among them are PTT, PTTEP, PTTGC, TOP, LH, BBL, KBANK, INTUCH, SCC, CPALL, BJC and MINT.
Individual alpha stocks that will ride the overall market trend, but with stronger magnitude, include those we recommend as first-in, first-out plays such as DDD, WORK, CBG, CMAN, PSL, PRM, MVP, SGP, JMT (JMART) and NETBAY.
Stocks that will benefit directly from stimulus measures espoused by political parties include retail and consumption plays (BJC, CPALL and CPF). They could gain from policies involving childbirth and child-raising support, a minimum wage increase, subsidies for low-income earners and the farm sector.
Meanwhile, some other stocks might also benefit from policies aiming to support electric cars and buses (EA, GPSC) and clean fuel like B20 and the Euro 5 standard (BCP, GGC).
The ability of the next government to move forward with policies to stimulate consumers' spending and other public projects will determine the magnitude of the rallies by the aforementioned stocks. In any case, it will take some time after the government is formed for public projects to gather steam, which may start to yield results by year-end.
External factors: The Sino-US trade talks are showing signs of taking longer than expected, despite positive signals in recent weeks. More Brexit votes are on the agenda next week, as the UK looks to avoid crashing out of the EU without a deal on March 29, or to possibly extend the deadline to June 30. The outcome of the votes in London could adversely affect global and Thai equity markets.
On the monetary policy front, the Federal Open Market Committee will meet on March 19 and 20. We expect the US central bank to signal just one interest rate increase for the rest of the year, while also downgrading its economic growth forecast. Such moves will be positive for the overall stock market, albeit temporarily, especially as economic momentum for the remainder of 2019 will probably be weaker than current projections.
The Bank of Thailand's Monetary Policy Committee will meet on March 20, when we anticipate a slight shift in voting to 4-3 in favour of keeping the policy rate at the current level versus raising it. At the previous meeting, the vote was 4-2 (one member was absent) for leaving the rate untouched. We see a greater probability that the panel will raise the rate at the May 8 meeting.
