SET is on track for 1,000 points

SET is on track for 1,000 points


Despite the impressive SET index rally of 24% YTD versus a negative return of (-3.8%) for MSCI ex Japan (and -6.0% for S&P), SET valuation is still inexpensive at 12x compared with the regional average at 14.2x. Note that since our recent index upgrade to 1,000 points (based on PER of 13.5X) in late July, the SET has already rallied by nearly 10%.

Decoupling is possible under no global recession case

Weak economic readings from the US continue to dampen investor confidence about the outlook of the economy and raise concern about a double-dip recession at the global level. Nonetheless, with the Fed’s recession gauge remaining at the rock-bottom level, we think Asian economies and Thailand will be able to diverge their economic trend from those of the US and EU (G2). The main driver for growth in Asia is not only much-improved intra-regional trade, but also sound domestic economies. As far as the Thai economy is concerned, overall growth will be driven by solid recovery in domestic consumption and investment, which will push GDP growth to 7.5% YoY this year and 5.5% in 2011. Nonetheless, our assumption requires some measure of stability in the political environment over the next 18 months.

Our top picks:

Our top stock picks for the month remain domestic plays, which should benefit from the new spending/investment cycle. We think real fundamental factors such as the government budget, employment market, wealth stream, as well as sentiment related stories, will accelerate the above trend growth (pent-up demand) and lead to the recovery of pricing power and corporate profitability expansion. Our 2011 earnings growth projection for the related sectors is attractive at 15-20%, while we still foresee the potential for further upgrades. Based on this theme, we prefer Banks, Construction and Consumer plays, such as BAY, TSTH, CK, LPN and ROBINS.