kbank multi asset strategies · equity market monitor page 19 “kbank multi asset strategies”...
TRANSCRIPT
KBank
Multi Asset
Strategies
February 2019
Kobsidthi Silpachai, CFA [email protected]
KResearch [email protected]
KSecurities [email protected]
FX market monitor page 1
Fixed income monitor page 6
Economic monitor page 15
Equity market monitor page 19
“KBank Multi Asset
Strategies” can now be
accessed on Bloomberg:
KBCM <GO>
Disclaimer: This report must
be read with the Disclaimer
on page 29 that forms part
of it
1
Looking forward to 2019, the Thai baht to appreciate in early 2019, but weakening
pressure expected later on. The US dollar is to decline further on lower expectation
about future interest rate path and the BOT is likely to take a long pause after its latest
rate increase as well. Also, domestic factors would support the Thai baht strength
especially in Q1, given surplus Thailand current account which will support the demand
for Thai baht, especially from rising tourism inflows and subdued oil price, and
seasonality factor.
However we expect the baht to reverse its course as the impact of trade protectionism on
Thai exports and risk of EM sell-off from tighter global liquidity conditions look set to put
depreciation pressure on the baht toward the end of the year, with high volatility along the
way. The baht against the US dollar in Q1 is expected to appreciate toward 31.50,
and the depreciation trend will begin afterwards, post Songkran (Thai New Year).
We expect the Thai baht against US dollar to reach 33.00 at the end of 2019.
Thai baht to appreciate in early 2019, but expected to
weaken later on
Dovish Fed and weaker US dollar sentiment
The US dollar is to decline further on lower expectations about future interest rate
path. This came in after the FOMC (Federal Open Market Committee), in the December
2018’s meeting, has lowered its dot-plot forecasts for the future rate hike in 2019 from 3
to 2 hikes. The prospect about global economic slowdown from the impacts of trade
protectionism on global trade volumes and uncertainty in Emerging Markets are the major
reasons for the Fed to more mindful about the future path of the rate hike(s) (Fig. 1). The
Currencies moves against US dollars (%YTD) USD/THB outlook 2019
-2.9
-0.7
-0.6
-0.5
-0.1
0.0
0.0
0.6
1.1
1.4
1.9
3.3
3.4
-4.0 -3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0
INR
EUR
TWD
KRW
JPY
PHP
DXY
SGD
MYR
GBP
CNY
THB
IDR %YTD
31.50
33.00
30
31
32
33
34
35
36
Jan-17Apr-17 Jul-17 Oct-17 Jan-18Apr-18 Jul-18 Oct-18 Jan-19Apr-19 Jul-19 Oct-19
USD/THB
USD/THB USD/THB: baseline
Q4 2019
Q1 2019
Source: Bloomberg, KBank Source: CEIC, KBank
FX market monitor: USD/THB target for 2019…dovish Fed
and Global slowdown
Peerapan Suwannarat [email protected] Warunthorn Puthong [email protected] San Attarangsan [email protected]
Disclaimer: This report
must be read with the
Disclaimer on page 30
that forms part of it
2
Fed has clearly hedged its future verdicts and emphasized on being more “data
dependent” for future policy rate decision. This implies less room for the Fed to maneuver
for further interest rate increase. Despite, strong US labor market and domestic
inflationary pressure, the heightened external risk is likely to delay the next rate move for
the Fed.
US government shutdown has raised market concerns over future spending,
subsequently weighing on US growth and dragging the dollar outlook (Fig. 1). The
35 days of partial government shutdown ended as the US government agreed on a stop-
gap funding without funding for the wall included. This will allow the government to
reopen for operations until Feb 15. The US Congressional Budget Office estimated that
the impact of the shutdown is likely to cut GDP growth for Q1 2019 by 0.2% of GDP.
Recent US economic indicators also signal weaker growth i.e. the US Consumer
confidence weakened since December 2018 and ISM manufacturing index recorded the
lowest level since January 2017.
The BOT is likely to take a long pause after its latest rate increase as well. In
December 2018, the Bank of Thailand has raised the policy rate for the first time since
2011 to 1.75%. The post MPC statement from the February meeting still see the need to
curb financial stability risk, especially search-for-yield behavior i.e. by raising policy rate
(Fig. 2 and 3). This is one reason why we expect the Thai baht to show an appreciation
trend, still, at least in the first quarter of 2019. However, we do not expect the MPC to
raise rate further, at least until late 2019 as global volatility looms, inflation outlook
remains subdued and the Thai baht against US dollar has strengthened significantly by
more than 3% since the beginning of 2019, outperforming most of other regional
currencies.
Strong domestic and external stability have characterized Thai assets as being
relatively safe compared to other Asian currencies. This would keep the Thai baht
strong, relative to other Asian currencies. Moreover, Thai bonds have remained attractive
as the BOT is likely to pause its tightening cycle until the end of this year given muted
inflation outlook, as well as strong external stability i.e. current account surplus, low
foreign holding in government bonds (Fig. 4).
Outlook for Thailand current account surplus
The Thai current account surplus is to support the demand for Thai baht. The
current account surplus in December increased to the highest level recorded since April
2018 at USD5 billion (Fig. 5). Both goods trade balance and service balance widened,
despite the impact of global economic slowdown ion export growth. Going forward, we
expect Thai current account to remain positive and should continue to support the
strength of Thai baht, mainly from the followings:
o Thailand Imports of intermediate goods rely heavily on Thai exports. Slowing
exports would cause imports to slow as well, especially for the exports for the
exports of electronics and automobiles. The contraction in exports of both
goods led to the slowdown of raw material imports of electronic and vehicle
3
parts (Fig. 6). Also, the prospect of a global trade slowdown is likely to delay
Thailand business investments. We found that the falling capital utilization
rates of major manufacturing sectors since the second half of 2018 had led
to slow down in imports of capital goods (Fig. 7).
o Subdued oil price is to widen the current account surplus further, given that
Thailand is a net importer of oil. Total fuel import to Thailand accounted for
13% of total Thai imports and net import of oil accounted for 5% of GDP. The
contraction of Dubai oil price by almost 30% in Q4 2018 to the lowest level
since late 2017 had caused the trade surplus to widen in December 2018.
o Foreign tourist inflows to Thailand during the high season of tourism in the
first quarter are to support the demand for Thai baht, at least until the end of
Songkran holiday (Fig. 8). Despite the global economic slowdown, the
inflows of foreign tourist to Thailand have continued to expand. We have also
seen that the growth in number of tourists from China has turned positive in
December, after 5 consecutive months of contraction. The continuation of
tourism inflows in Q1 2019, especially from Asia would support the current
account surplus, hence a stronger Thai baht.
Mindful of global risk environment
The Thai baht is to be weakened by the end of 2019. Weaker global demand and
China slowdown remain to be the key risk factors that support demand for safe-
haven currency like the US dollar, weighing on Asian currencies. The ongoing trade
protectionism could slow the global trade outlook next year, causing lower demand for
currencies of export-dependent EM currencies including the Thai baht. This would
increase the risk-off sentiment and support demand for assets perceived by the investors
as safe haven such as the US dollar and the Japanese yen.
Also, tighter global liquidity is likely to trigger capital outflow from Emerging
Markets. Countries with higher external debt exposure are likely to experience markets
sell-off at a greater extent (for further details, please see Fig.6) with worsening appetite
for their currencies. Emerging Markets (EM) will face higher external borrowing costs and
higher refinancing risks. Those whose economies are relatively more financially fragile to
the external conditions i.e. Indonesia, and India, as well as Argentina, South Africa, and
Turkey are likely to face major capital outflows. While, the effect of EM concerns on
capital outflows tends to be relatively less severe for Thailand in comparison to other
EMs given that Thailand’s external stability remains favorable. Hence, although the Thai
baht is likely to depreciate against the US dollar but the risk of a sharp depreciation
seems to be limited.
4
Fig 1. USD/THB targets for 2019 Fig 2. Consensus lowered expectation on Fed hikes
1.25
1.50
1.75
2.00
2.25
2.50
2.75
3.00
Jan-18 Jul-18 Jan-19 Jul-19 Jan-20
Fed Funds, mid point, %
futures curve as of 14-Nov-18
futures curve as of 16-Jan-19
2.50
2.753.00
1.75
2.00
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
FFR Upper boundConsensus forecast for FFRBoT rateConsensus forecast for BoT rate
%
Source: Bloomberg, KBank Source: Bloomberg, KBank
Fig 5. Thai Current account balance Fig 6. Thai imports and exports growth of manufacturing
1.6
5.0
-2.0
0.0
2.0
4.0
6.0
8.0
Jan-17 Jul-17 Jan-18 Jul-18
Godds trade balance Services, Primary income & Secondary income Current Account Balance
-20
-15
-10
-5
0
5
10
15
20
25
2014 2015 2016 2017 2018
3mma, %yoy
Imports: RM: Non-Agro Exports: Manufacturing (Mfg)
Source: Bloomberg, KBank Source: Bloomber consensus, KBank
Fig 7. Thai Cap U and imports of capital goods Fig 8. Tourism seasonality and USD/THB
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
60
70
80
2014 2015 2016 2017 2018
6mma, % 6mma,%YoY
Capacity Utilization: major Manufacturing sector
Imports of Capital Goods: Machinery and Equipment (RHS)
0.985
0.990
0.995
1.000
1.005
1.010
0.80
0.85
0.90
0.95
1.00
1.05
1.10
1.15
1.20
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Seasonality of tourist arrivals Seasonality of tourist revenues Seasonality of USD/THB, RHS
High tourism season zone
Low tourism season zone
Source: Bloomberg, KBank Source: Bloomber consensus, KBank
Fig 3. Central bank policy rate in Asia Fig 4. Current account and FX volatility
16/01/2019
Policy
rate GDP Inflation
Deviation
from
target NEER move
Asia % 2019F 2019f pt % 2018
India 6.50 +25bp(Aug 18) 2nd 7.3 3.8 -0.2 -3.9
Philippines 4.75 +25bp(Nov 18) 5th 6.4 4.0 1.0 -2.4
Indonesia 6.00 +25bp(Nov 18) 6th 5.1 3.8 0.3 -2.7
Korea 1.75 +25bp(Nov 18) 2nd 2.5 1.8 -0.2 -0.1
Thailand 1.75 +25bp(Dec 18) 1st 3.9 1.3 -1.2 4.8
China 2.55 +5bp( Mar 18) 6.2 2.3 -0.7 0.3
Malaysia 3.25 +25bp(Jan 18) 1st 4.6 2.0 -1.5 1.5
Singapore 0.08 na 2.6 1.3 1.8
Taiwan 1.38 -12.5bp(Jun 16) 2.3 1.2 0.5
Last move
Hik
ers
-5.57-3.53
-6.26
-0.91 -1.53-3.8
4.64
-2.77
3.27 3.81
9.968.29
12.73
2.59
18.45
-10
-5
0
5
10
15
20
25
Arg
entin
a
Sou
th A
fric
a
Tur
key
Bra
zil
Mex
ico
Uni
ted
Kin
gdom
Sou
th K
orea
Indo
nesi
a
Eur
ozon
e
Japa
n
Sw
itzer
land
Tha
iland
Tai
wan
Mal
aysi
a
Sin
gapo
re
Realized FX Volatility (3M) CA balance (%GDP)
%
Source: Bloomberg, KBank Source: Bloomberg, IIF, KBank
5
KBank “FX Markets Insights”
FX outlook and comments
EUR
Concerns over growth outlook of the Eurozone economy is likely put pressure on euro. Eurozone economy has shown signs of slowdown, reflecting from consumer and business sentiment, as well as the effect more difficult external economic condition on exports. This could have implication on ECB’s accommodative policy, going forward. However, we do not expect the euro to be significantly lower than current level due to limited upside for the dollar sentiment as Fed continue to send more dovish signal and the impact of government shutdown is to be felt on US economy.
Bearish
JPY
The yen would be affected by global risk-off sentiment and Geopolitical concern. Monetary policy divergence between the BOJ and the Fed has been the factor weighing on the yen. However, the pressure is likely to ease over the short term as the Fed has been sending dovish signal about future rate increase. The global risk-off sentiment, especially from the weakening global growth, Brexit, and conflict between US and China also support the yen.
Bullish
GBP
GBP is likely to remain volatile as no agreement could lead to no-deal Brexit, while risk of Brexit delay second referendum could support GBP. The Brexit deal has been rejected by the UK parliament for the second time. The further amendment of the deal and Irish backstop could allow the UK parliament to accept the deal, but such deal will also have to be approved by the EU. GBP is likely to be trading around the sentiment over Brexit. GBP is to weaken in the wake of the risk of no-deal Brexit and to gain on the increased possibility of extension of Article 50, or second referendum.
Neutral
CNY
Impact of trade conflict between the US and China is likely to ease in the short term. This reflected from the agreement to cease fire for 90-day (until March 1). Some positive development from trade talk between both sides i.e. agreement not to raise tariffs on imports from China to 25%, is likely to support the yuan. However, in longer term, the yuan is likely to weaken from Chinese economic slowdown and the impact of trade tariff on China’s exports and investment.
Bullish
Asian currencies
Depreciation pressure on EM Asia currency is lessening, at least in the short term. Most Asian currencies that have suffered from the trade conflict between US and China, as well as rising Fed Fund rate are likely to see some gain, at least in short run. IDR, INR, and PHP are likely gain as the Fed pauses from rate hike. Also, easing tension on trade policy supports most
Asian currencies. In the longer term, slower global economic growth is to
keep downward pressure on EM Asian currencies.
Bullish
THB
Thai baht is expected to show strength in early 2019 on weakening dollar and stronger baht. Thai economic expansion supported by domestic demand, especially during Q1 2019, prior to the Thai general election. Also, inflows of foreign tourists during the high season in Q1 would raise demand for Thai baht. Meanwhile, slower Thai exports growth from weakening global demand and trade policy, as well as falling tourism revenue from Chinese tourist visitors are the key factors to weigh on the baht.
Bullish
6
Fixed Income Monitor: More pressure on Thai bond yields
The Thai bond yields are on a downside bias along with yields in
other regional countries due to concerns over a global economic
slowdown in a near-term
Lack of clarity on the US-Sino trade deals and uncertainty on the
US fiscal policies will weigh on global yields further at least until
early March
Greater downside risks in global markets at the beginning of the
year prompted us to adjust our outlook of the next Thai policy rate
hike to 2020 from the end of 2019
Bull flattening bias
Thai bond yields have been in a downward trend since November. Higher global
worries over overall economic growth outlook, and economic and political issues in
specific countries eroded investors’ confidence. The bond markets in almost every
country including Thai and Emerging Asia countries, thus, remain in demand to
hide/invest during high uncertainties (Fig.1) despite stock markets rebound upon
changed short-term market moods. Besides, investors still view Thailand as a safe-haven
asset within the emerging markets space due to favorable external stability conditions
such as low inflation, relative higher current account surplus, and low foreign currency
debt. The 98.9% correlation between 10-yr Thai and Japanese government bond yields
since November 2018 clearly explained the move, compared with the 90.8% correlation
with the 10-yr US Treasury yield. Thai bond yields exhibited a downward bias during
high-risk aversion periods. On the other hand, the short-term bond yields enjoyed support
from the Bank of Thailand’s Monetary Policy Committee, which decided to lift the rate
higher to 1.75% in December. This capped the magnitude fall in the 2-yr yield to only 3
bps versus a 6 bps drop in the 10-yr yields.
The concerns of the US economic outlook became more evident. President Trump
intentionally ignored American workers’ plight from the longest government shutdown and
insisted his stance toward the Southern border wall. Coupled with some weaker
sentiment indicators, such as purchasing manager and ISM indices, 10-yr US Treasury
yields slipped to the lowest level since early last year. Additionally, the Federal Reserves
(Fed) chairman Jerome Powell gave a more dovish message in a press conference after
announcing the monetary policy decision in January. The markets added more chance of
the Fed to keep its Fed Funds rate unchanged throughout the year with a market-implied
probability of a rate hike at 4.3% in the December-2019 from 8.0% measured on the
year-2018.
We expect this downside pressure on the long-term yields to continue at least until
early March. One of two key issues is the trade spat. The mid-level and higher-level
official meetings in January did not deliver material deal among counterparties as the
final decisions are spared only for the top of the administration. That is why both sides at
Kobsidthi Silpachai, CFA [email protected] Peerapan Suwannarat [email protected] Warunthorn Puthong [email protected] San Attarangsan [email protected]
7
working levels agreed to have the second meeting between both country leaders.
However, the timeline is tight as only less-than-a-month left to set mutual interests before
a deadline on March 1 reaches. The backbones on trade talks remain on technological
transfers, intellectual property rights and Chines industrial policies “Made in China 2025”.
Secondly, future US fiscal policy implementation is vague. The US President seemed to
focus on the construction of Southern border wall as a top policy priority of the year,
following tax reform in 2017 and trade protectionist policy in 2018, the despite no majority
support from the House of Representatives. This will add more tension on the debt ceiling
discussion in early March as the current public debt of USD 22 trillion in January was far
beyond the ceiling limit of USD 20.5 trillion set in early last year. Both factors will weigh
on the US Treasury yields.
Delaying key rate hikes due to rising downside risks
Greater downside risks in global markets at the beginning of the year made us shift our
outlook of the next Thai policy rate hike to 2020 from the end of 2019. Below are the
details.
Pressure from global monetary tightening wanes. We push next Fed Funds rate hike
to December, from June as previously estimated, as the global situation had changed
from the past couple of years. For now, the trade cycle had passed its peak and is on a
downward trend. The trade conflict also accelerates this downturn stage as shown by
export growth slowdown and contraction in many countries. Even though the US and
China trade talk is ongoing, we expect the structural issues will prevent them to end the
negotiation in early March. Besides, the Fed had raised rates many times to a level
above inflation, reducing a pressure to rush for another hike. In term of peer comparison,
the European Central Bank (ECB) seems U-turn its policy toward more easing after
ending the quantitative easing program at the end of last year. The Bank of Japan has
been stuck with subdued inflation for a decade and finds it difficult to reverse its policy in
a near-term. As for the Fed balance sheet reduction, the plan is likely to continue its pace
as the actual amount of the dollar liquidity missing each month remains small. Powell
also said in the press conference in January that the change in traditional policy will be
prioritized. Given these circumstances, pressure on the US-Thai interest rate gap will be
less, easing the need for the Bank of Thailand (BOT) to increase its key rate.
The consequence from a change in major monetary policymakers reduces Asian
peer pressure of policy rate direction. Last year, 4 Fed Funds rate hikes led many
Asian countries with external financial vulnerability and high inflation to catch up to
prevent sudden huge capital outflows. The central banks of Indonesia and the Philippines
recorded the highest move with 6th and 5
th rate hikes, respectively. Despite low inflation,
the Bank of Korea also raised rates in November followed by the BOT in December. A
change in the Fed’s stance will help the Asian central banks to pause the rate move.
Both demand-pull and cost-push factors will fail to support rising Thai inflation. It
is clear that rising headline inflation last year was mainly driven by fuel oil prices as
transportation costs gained the largest contribution while core inflation has steadied on
average of 0.71%YoY since 2015. A subdued improvement in non-durable good
consumption proved that economic recovery did not translate into a low-income earners’
wealth (Fig.3). On the supply side, fuel price is likely to stay low as the US, the new big
producer adds to the supply glut from economies of scales. This also has an indirect
8
effect on agricultural prices (substitutability effects) as well as Thai farm incomes. Both
low headline and core inflation support a higher rate decision.
Thailand’s safe-haven status. Unlike when the economy is in a stage of expansion and
investors search for higher returns, the current economy is in a downturn stage of the
cycle. Investors, thus, cautiously consider their asset allocations toward safer assets.
Among emerging markets Asia, Thailand is placed as the safest rank in term of low
financial vulnerability. The yield with discounting costs of inflation, political uncertainty,
and exchange rate gain/loss reveals that Thailand is the best performer (Fig. 4). This
made USD/THB to be an outperformer in the region since the beginning of the year.
However, this status made the BOT harder to increase an interest rate as a raising rate
will attract more capital inflows to Thai bonds.
However, there is an upside risk of the Thai policy rate. The MPC remains
preoccupied over search-for-yield behavior. Even though they decided to lift the rate
upward by 25 bps in December, yesterday’s meeting result suggests that they kept
mentioning this concern. The 2 members who voted for additional 25 bps hike to 2.00%
saw that the Thai economic growth was close to potential levels, which is justifiable for
the build-up for policy space and attempt to curb the financial stability risk. Given the
MPC’s view on the essence of keeping financial stability intact, the possibility of a rate
hike later this year should not be overlooked.
Investment strategy
Based on our short-term outlook, increasing the portfolio duration will be
appropriate with a bull flattening bias of the Thai bond yield curve. Given
the reference government portfolio duration at 8.66 years, we recommend buying
bonds with a maturity of more than 9 years or selling bonds with less-than-8-
years maturity. For securities selection, the Rich-Cheap model (Fig. 5) suggests
keeping holding LB326A with an entry level of 2.87%, an exit of 2.81%, a stop
loss level of 2.91% and an expected return of 6 bps over a 3-month horizon.
Barbell investment. As a curve is expected to flatten in a near-term, the implied
yield spreads between a combination of 2Y and 10Y less 5Y bonds will tighten
i.e. a negative butterfly. However, afterward, we found that investing in the 5Y
bond is expected to outperform investing in a combination of 2Y and 10Y bonds
as the curve shifts towards a “positive butterfly”.
9
KBank Deductions – Rate Insights
Policy Rates
Outlooks/Comments
Fed
A more dovish Fed. Overall US economic activities remained solid except a cooling housing market from rising
Fed Funds rate. The labor market remains tight while private consumption moderately expanded. Inflation is falling but close to the 2% target. However, benefits of tax reform in term of growth had faded and additional fiscal stimulus will be more difficult to pass into law as Democrats hold a majority in Congress. Trump’s inability to strike a deal with Democrats for a border wall with Mexico raises the risk of future government shutdowns. The US-China trade talks will probably drag on until the year-end.
ECB
Weakening growth across the region. Italy slipped into recession in Q4 due to problematic budget negotiation
between Rome and Brussels as Italy’s high public debt levels limit its borrowing capacity to support growth, dampening business confidence, driving up its borrowing costs. The BREXIT uncertainty also raised risk premium/ funding costs on the Eurozone economies. Besides, US trade protectionism had cut regional export revenues and productions, increasing the risk of more recessions within the Eurozone. Thus, we expect the ECB to remain on an easing bias via holding its key reference rates unchanged while maintaining sizeable liquidi ty in the market to support growth.
BOJ
Continuing its pace of monetary easing. A downturn cycle in global trade along with the US-China trade spat
will be unfavorable to Japanese exporters while its private consumption will be impacted by a VAT hike to 10% by October 2019. Besides, its aging population will be less responsive to stimulate domestic spending and marginally improve inflation. Its inflation outlook for the next 3 years remains tepid.
BOT
Long pause until next year. Expected prolonged US-Sino trade talk has impacted Thai exports and tourism,
slowing overall growth. Private consumption remains strong but might not drive inflation as global oil price could fall from the effect of oversupply. A more dovish Fed on rate normalization will loosen the BOT’s stress to bridge the interest rate gap. Even though the election schedule is clear, a continuation of policy implementation by the new government remains vague. While existing investment will be ongoing, political uncertainty could delay new investment projects going forward.
(Unit: %) Spot Q1/19f Q2/19f Q3/19f Q4/19f
Fed 2.25-2.50 2.25-2.50 2.25-2.50 2.25-2.50 2.50-2.75
ECB* -0.40 -0.40 -0.40 -0.40 -0.40
BOJ 0.00 0.00 0.00 0.00 0.00
BOT 1.75 1.75 1.75 1.75 1.75
* Deposit facility rate
Yields Outlooks/Comments
UST
High global economic and financial uncertainty to weigh on UST yields. As the US economy remains on a
solid footing (on consumption and labor markets) we view that the markets are overestimating the US economic weakness. We thus expect the market to rebalance their portfolios to riskier assets once expectations are readjusted. However, larger US fiscal deficits due to tax reform could uplift long-term bond yields. By contrast, the rising in yields could be limited by overall economic growth slowdown from the downturn of the trade cycle, BREXIT uncertainty, and artificial trade conflict initiated by the US itself. Lower 5Y5Y US inflation expectations and excessive market’s UST short positions should limit a yield upside.
End period 1y MoM bps 2y MoM bps 5y MoM bps 10y MoM bps 2-5 spread 2-10 spread Policy rate
Dec-18 2.60 -8 2.49 -30 2.51 -30 2.69 -30 2 20 2.50
Jan-19 2.55 -5 2.46 -3 2.44 -8 2.63 -6 -2 17 2.50
2019f-end - - 3.00 - - - 3.20 - - 20 3.00
TGB
Bear steepening curve by the end of the year. The long-term Thai bond yields will probably move in tandem
with long-term US Treasury yields. We expect the Fed to pause but not stop its monetary policy normalization as overall US economic development remains solid above its trend. Besides, high global financial volatility and uncertain trade talks will discourage foreign portfolio investments in the EM Asia space, supporting long-term yields to rise. The supply-side factor of higher planned government bond auctions also supports rising yields. As for the short-term yields, slowing growth and lower pressure of Fed normalization could delay the BOT rate hike to next year.
End period 1y MoM bps 2y MoM bps 5y MoM bps 10y MoM bps 30y MoM bps Policy rate 2-5spread 2-10spread
Dec-18 1.75 3 1.81 -9 2.16 -19 2.51 -25 3.31 -4 1.75 35 70
Jan-19 1.77 2 1.80 -1 2.11 -6 2.44 -7 3.34 3 1.75 31 64
2019f - - 2.10 - - - 3.00 - - - 1.75 - 90
10
Fig A. Thai government bond yield curves Fig B. Thai government bond yield movements
Source: Bloomberg, KBank Source: Bloomberg, KBank
Fig C. Thai bond market trading Fig D. Non-resident position in Thai bond market
Unit: THB mn Oct-18 Nov-18 Dec-18 Jan-19
Average trading value 984,911 910,497 998,455 977,933
Asset Mgnt. Companies (TTM>1) -11,437 4,149 21,647 3,907
Asset Mgnt. Companies (Total) 229,475 294,669 286,041 379,924
- Total flows 33,955 16,278 -16,611 -7,876
- Long-term (TTM>1) 33,760 25,795 8,503 13,033
- Short-term (TTM<1) 7,728 -3,625 -11,376 -20,470
- Expired bond -7,533 -5,892 -13,738 -439
-Foregin holding in GB (% share) 17.9 18.3 18.5 NA
Domestic investors
Foreign investors
28.5
26.9
27.9
23.8
26.2
27.1
21.8
19.1
19.0
7.3
12.7
12.8
18.6
15.1
13.2
Nov-18
Dec-18
Jan-19
Net foreign bond holding by TTM (% share)
>10Y 5-10Y 3-5Y 1-3Y 0-1Y
Source: CEIC, KBank Source: CEIC, KBank
Fig 9. Thai and EM Asia bond yield indices Fig 10. US, Thai, and Japanese 10Y bond yields
80
85
90
95
100
105
110
115
Jan-
17
Fe
b-17
Mar
-17
Apr
-17
May
-17
Jun-
17
Jul-1
7
Aug
-17
Sep
-17
Oct
-17
Nov
-17
Dec
-17
Jan-
18
Fe
b-18
Mar
-18
Apr
-18
May
-18
Jun-
18
Jul-1
8
Aug
-18
Sep
-18
Oct
-18
Nov
-18
Dec
-18
Jan-
19
Fe
b-19
%
Note: EM Asia yield index includes ID, PH, IN, HK, CN, TW, MY,TH, and VN
Selected 10-yr yield movements
TH EM Asia
-0.10
-0.05
0.00
0.05
0.10
0.15
0.20
0.25
0.30
2.00
2.20
2.40
2.60
2.80
3.00
3.20
3.40
Jan-
17
Mar
-17
May
-17
Jul-1
7
Sep
-17
Nov
-17
Jan-
18
Mar
-18
May
-18
Jul-1
8
Sep
-18
Nov
-18
Jan-
19
%%
Selected 10-yr yield movements
TH US JP
Source: Bloomberg, KBank Source: Bloomberg, KBank
11
Fig 11. Contribution to private consumption growth Fig 12. Peer comparison of disposable yields
-5.0
-3.0
-1.0
1.0
3.0
5.0
7.0
9.0
Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18
%YoYContribution to private consumption
Non-durable Semi-durable Durable
Service Non-Residents Private consumption
-49.8
-9.9-6.8 -6.1 -5.3 -4.6 -3.7 -2.8 -2.6 -1.5 -1.0 0.2 0.4 0.7
1.3 3.2 5.1
-60.0
-40.0
-20.0
0.0
20.0
TR IN AU ZA TW PH KR CN Asia MY HK ID US SG JP GE TH
%from BGN18
Nominal yield after costs of inflation, country risk and FX
Nominal yields Inflation CDS, % Chg. In FX Net gain/loss
Source: CEIC, KBank Source: Bloomberg, KBank
Fig 13. Rich-Cheap model
-3
-12
-7 -6-4
-2-1
-5
-11
3
6
1
-25
-20
-15
-10
-5
0
5
10
15
20
LB206A LB21DA LB226A LB22DA LB236A LB23DA LB25DA LB26DA LB28DA LB316A LB326A LB366A
1.75% 1.8% 1.91% 1.96% 2.01% 2.08% 2.24% 2.31% 2.38% 2.66% 2.75% 2.93%
Yield spread (Act. - est.) (bps)
Sector, yield as of 04 Feb 19
3M Average Now
Note: The red dot is the spread between current and estimated bond yield in each sector. The green line is an average bond yield during the last 3 months. The vertical line represented the yield movement during the past 3 months. Investors who do not have a solid view on yield curve outlook may use this model for short-term investment by buying an undervalued bond, whose yield above the average (red dot above green line), and selling an overvalued bond, whose yield below average (red dot below). Under an assumption of mean reversion, we expect the current yields will convert their average value in the next 3 months. Source: KBank
12
A quick thought on Fed’s QT
The recent FOMC meeting in January, more or less, confirmed that the US Federal
Reserve (Fed) would remain patient for the next move given a huge turmoil in the global
financial markets during late 2018. By contrast, it seems that the Committee is still
progressing through its balance sheet normalization, as dubbed quantitative tightening
(QT). It’s worth checking on a few charts that highlight the path of normalcy and how
such measure might have any implications on the markets.
To start with, let’s see how the global financial conditions change after the Fed has raised
its Fed Funds for 4 times in 2018 while the European Central Bank (ECB) has decided to
unwind its stimulus program. Fig. 1 clearly shows that the financial conditions have been
increasingly tightened albeit at a much lesser degree when compared to the period of
economic recession.
The key market concern is that would the Fed’s implementation of QT potentially lead to
a slump in asset prices. The logic is as follows: the old acronym quantitative easing (QE)
had once inflated asset prices; the unwinding of its stimulus packages through the
balance sheet reduction would cause trouble in the markets. As evidenced in Fig.2, it is
highly likely that EM stocks couldn’t avoid the impact of lower global liquidity as the Fed’s
carry on its plans for normalization forward.
Obviously, no one ever doubts how QE has solved problems during the period after the
financial disaster in 2008. However, it also created another big problem too. Easy and
cheap money have resulted in rising debt levels in many countries. And the opposite is
true, tightening financial conditions could also lead to decelerating bank lending whereby
affecting countries whose economic growth have been deeply relied on credit (Fig. 3).
From Econ 101, ceteris paribus, the lower the supply of a commodity, the higher is its
price. Fig. 4 clearly shows the relationship between the price of the greenback and
changes in balance sheet size. As a result, the Fed’s absorption of dollar liquidity would
likely trigger capital outflows from emerging countries which possess high dollar-
denominated debts (Fig. 5).
From another standpoint, gradually reducing the Fed’s holdings of US treasuries will
affect the yield movement. All else being constant, less bond reinvestment implies less
bond purchases, consequently push upward pressure on yield (Fig. 6). Nonetheless, we
still expect the upside to be limited as the economic outlook remains uncertain. According
to Fig. 7, the movement of the 10-yr treasury yield coincided with the adjusted US GDP
growth during the last couple of quarters. Given that the US economic growth is likely to
soften in 2019 as the impact of fiscal stimulus is expected to fade off, we think that slower
economic growth would prevent the 10-yr yield from overshooting.
Besides, it is also possible that it is the FOMC’s guidance itself that actually dictates the
movement of the 10-yr yield. As Fig. 8 shows, the 10-yr yield has been capped by the
Fed’s longer-run rate (rates of growth, inflation, unemployment, and federal funds rate to
which a policymaker expects the economy to converge over time in the absence of
further shocks and under appropriate monetary policy). Last but not least, the pace to
which the Fed reduces holdings of both the US treasury and the mortgage back
securities might not be as frightening as we previously expect as it would take several
years for the Fed balance sheet to return to normalcy.
13
Fig 1. Global financial conditions index Fig 2. QT and EM stock performance
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Chicago Fed Nationational Financial Condition Index (NFCI)
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
10 11 12 13 14 15 16 17 18 19 20
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
Sum of FED, ECB, ECB Balance Sheet MSCI EM
Source: Chicago Federal Reserve, KBank Source: Bloomberg, KBank
Fig 3. Credit intensity of GDP growth ratio Fig 4. Non-resident position in Thai bond market
0
2
4
6
8
10
12
CH KR IN MA TH ZA BR ID SG TR AR HK
Credit-intensity of GDP growth ratio
-60
-40
-20
0
20
40
60
80
100
120
04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
65
70
75
80
85
90
95
100
US Federal Reserve Treasury Holdings (%YoY) US NEER
Source: ADB, Bloomberg, KBank
Note: The ratio of incremental aggregate debt to incremental output. High ratio means economic growth depends largely on credit.
Source: CEIC, KBank
Fig 5. USD and EUR denominated debt (% of total) Fig 6. Fed’s holdings of treasury and 10-yr yield
0
10
20
30
40
50
60
70
80
90
Chi
na
Kor
ea
Indi
a
Mal
aysi
a
Tha
iland
Sou
th A
fric
a
Bra
zil
Indo
nesi
a
Sin
gapo
re
Tur
key
Arg
entin
a
Hon
g K
ong
Non-financial corporate Financial corporate
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2003 2005 2007 2009 2011 2013 2015 2017 2019
0.0
1.0
2.0
3.0
4.0
5.0
6.0
US Federal Reserve Holdings of Treasury (USD Trillion) 10-Yr Tresury Yield
Source: Bloomberg, KBank Source: Bloomberg, KBank
14
Fig 7. US GDP growth and 10-yr yield (%) Fig 8. FOMC’s guidance on longer-run rate
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
11 12 13 14 15 16 17 18 19
Adjusted US GDP Growth 10-Yr Treasury yield
2.6947
2.750
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19
10yr UST yield, % Fed DOTS, long run funds target
Source: Bloomberg, KBank Source: Bloomberg, KBank
Fig 9. Fed’s balance sheet reduction
Source: Bloomberg, KBank
15
Economic Update
Economic activities in December suggested a mediocre
economic growth, making GDP in 4Q2018 grew on par with the rate in
3Q2018
Global economy experiences a significant slowdown in 2019, the
risk toward global recession should contain
Units: %YoY, or indicated otherwise 2017 3Q-18 4Q-18 Oct-18 Nov-18 Dec-18 Jan-18 2018
Private Consumption Index (PCI) 2.6 5.7 4.6 6.6 3.8 3.5
4.5
· Non-durables Index 0.5 -0.1 3.0 2.9 3.1 3.1
1.2
· Durables Index 8.0 10.6 6.8 10.8 7.7 2.6
8.4
· Service Index 7.1 4.5 2.3 4.2 2.5 0.5
5.1
· Passenger Car Sales 18.1 27.7 10.3 17.2 15.1 -0.3
19.2
· Motorcycle Sales 5.2 -2.2 -0.9 0.4 -5.9 3.2
-1.3
Private Investment Index (PII) 1.6 2.7 2.7 3.3 3.1 1.8
3.0
· Construction Material Sales Index -0.9 4.7 7.9 13.9 7.5 2.5
2.7
· Domestic Machinery Sales at constant prices 1.0 8.4 4.9 5.5 3.7 5.5
6.5
· Imports of Capital Goods at constant prices 3.2 -0.6 2.7 2.4 6.5 -1.2
2.0
· Newly Registered Motor Vehicles for Investment
5.7 6.3 6.9 7.5 2.6 11.8
5.7
Manufacturing Production Index 2.5 1.0 2.5 5.8 0.9 0.8
2.8
· Capacity Utilization 67.5 66.4 68.4 68.9 69.3 66.9
68.5
Agriculture Production Index 6.1 1.3 -0.1 5.4 -4.2 3.1
5.5
· Agriculture Price Index -2.8 -3.0 -1.2 -0.1 -1.8 -1.6
-5.7
No. of Tourists 8.8 1.9 4.3 -0.5 4.5 7.7
7.5
Exports (Custom basis) 9.9 3.0 2.0 8.7 -1.0 -1.7
6.7
Price 3.6 3.0 1.6 2.5 1.5 0.7
3.4
Volume 6.0 0.0 0.4 6.0 -2.4 -2.4
3.1
Imports (Custom basis) 14.7 14.5 5.8 11.2 14.7 -8.2
12.5
Price 5.5 6.2 2.7 5.5 2.3 0.4
5.7
Volume 8.1 7.8 3.0 5.4 12.1 -8.6
6.5
Trade Balance ($ millions) (Custom basis) 13.93 - 0.62 1.76 - 0.28 - 1.18 1.07
3.3
Current Account ($ millions) 49.28 4.21 8.55 1.89 1.63 5.03 34.4
Broad Money 4.3 5.3 4.9 5.3 4.7 4.7
5.1
Headline CPI 0.66 1.47 0.84 1.23 0.94 0.36 0.27 1.07
USD/THB (Reference Rate) 33.9 31.9 32.8 32.8 33.0 32.7 31.8 32.3
Sources: BOT, MOC, OAE, and OIE
Warat Niamsa-ing, KResearch [email protected]
16
Thailand Economic Update
Economic activities in December suggested a mediocre growth
December data came with a mixed bag. The domestic economy grew at a slower pace due partly to a high base effect of consumption and a decline in capital goods imports. Meanwhile, external sectors offered a glimpse of hope after the number of tourist arrivals edged higher, but exports slipped into a mild contraction amid intensifying negative feedback loops of the China-US trade war. In the absence of new economic catalysts, the GDP in 4Q2018 would expand on par with the pace in 3Q2018.
Fig 1. Key economic indicators
Source: BOT, OIE, KResearch
Private Consumption Index (PCI) grew 3.5 % YoY in December, versus the 3.8% YoY in the previous month. A slowdown in consumption was partly attributed to a high base effect, resulting from the government tax rebate scheme and the introduction of new car models in the late of 2017. Overall, the consumption performed in line with moderate economic growth. Consumption in non-durable expanded further, helped by a recuperation in farm income. Meanwhile, consumption of services saw some weaknesses as consumers adopt cautious stance on spending amid rising uncertainties over economic prospects.
Private Investment Index (PII) expanded at a slower pace of 1.8% YoY in December. It was dragged by sluggishness in construction sector because developers had already adopted a cautious stance to brace for the new mortgage-lending rules from Bank of Thailand. Moreover, heightened uncertainties over US-China trade war and a slowdown in global demand hurt demand for capital goods imports.
The number of foreign tourist arrivals to Thailand reported 7.7% YoY growth, thanked to a visa fee waiver program. The number of Chinese arrivals reported growth for a first time in 5 consecutive months. Also, the new routes, connecting Thailand to India and China, brought about a rise in foreign visitors. All in all, the number of tourist arrivals registered a new record high of 3.8 million. Government spending remained restricted in December. Overall budgetary disbursements contracted 6.5% YoY, led by a 12.2% YoY decline in investment budget disbursement. Meanwhile, the accumulative disbursement rate in Q1FY2019 was 29.8%, failing short of the target of 30.3%. On the external front, exports experienced a mild contraction for 2-consecutive months in December and finished the 2018 at 6.7%. The value of exports declined
17
1.7% due to a sluggish demand from China and EU. Export to China experienced a declined of 7.3% YoY due to the negative feedbacks from US-China trade dispute. The affected product such as rubbers and computer and parts had a sharp drop of -45.6% YoY and -42.1% YoY, repectively. For EU, the export of Car and parts, computer and parts as well as ICs saw a decline. The export volume dropped of 2.4%, unchanged from the previous month. Going forward, KResearch anticipates that Thai exports may slowdown to 4.5% in 2018 due to the global slowdown as well as repurcassions from US-China trade dispute.
Headline inflation was rather bleak at the begining of 2019. The headline inflation rose marely of 0.27% YoY, weighted down by a decline in energy prices. Meanwhile core CPI rose 0.69% YoY. Going forword, the impact of high-base effect in energy price shoud dissipate and adjustment of transporation costs should provide some support for headlline inflation.Therefore, KResearch expects that the headline inflation may gradually increase to the average of 0.8% in 2019.
Global Economic Update
Global economy experiences a significant slowdown in 2019, the risk
toward global recession should contain.
Global economy started the year of the pig with a dismal outlook, PMIs in major economies except the US have drifted from moderate expansion to weak expansion and mild contraction. Monetary policy no longer supports the economic expansion after many central banks pursued the path back to “normal”. Unfortunately, some economies may have fiscal constraints that could limit their ability to respond to economic weakness, while rising financial costs may double down the situation. Regarding risk to global growth, the EU and China may become a potential risk event. Eurozone is in the mire of problems. Eurozone economic growth remained soft at the end of 2018. Global slowdown pose risk to the growth of the bloc. Real GDP in the Eurozone rose just 0.2%QoQ in 4Q2018. Meanwhile, Italy faced two consecutive drop in real GDP, suggesting the economy fell into a technical recession in the second half of 2018. Amidst dismal economic performance, Italy may face grave challenges. A recession and unstable political situation may cause a significant worsening in the Italian fiscal situation. This may result in a resurgence of financial turbulence in the Eurozone, unless the situation will improve in the near term. Apart from Italy, Brexit is an elephant in the room. Although Brexit could still be averted at the last minute, Brexit uncertainty remains. A disorderly Brexit could trigger an event risk and send UK into a recession, which the negative spillovers could reverberate into Eurozone economy.
A sharper-than-expected slowdown in the Chinese economy is another event to consider. The Chinese economy grew at the slowest pace in 28 years of 6.4% in 4Q2018, with retail sales in particular weakening. PMIs slipped into sub-50 level, a demarcation line between an expantion and a contraction, for 2-consecutive months. Meanwhile, the effectiveness of monetary policy to ward off economic risk from China-US trade war is in the question. A series of RRR reductions and massive liquidity injection failed to lift the corporate sentiment.The falling M1 in China to the multiple year low of 1.5% in December 2018 suggested that China corporate may refrain from making a credit or face some restrictions to do so. This might be signs of stress on balance sheets and faltering business confidence.
Chinese economic growth is expected to slow going forward, but stable consumer sentiment, particularly in the services sector, as well as initiatives from the Chinese government to reduce tax for consumers may support overall economic activies in the coming quarters. Therefore, a collapse in activity or a hard landing could be avoided.
18
Although the global economy experiences a significant slowdown in 2019, the risk toward
global recession should contain. A listless inflationary pressure could keep interest rates
lower for longer. Given a counitinuity of job creation in major ecomomies, the underlying
economy should withstand the headwinds in the near to medium term. Although there are
limited foreseeable risks that could bring global economy into recession, an escalation of
trade war out of control may result in the lower-than-expected global economic growth.
19
Market risk is well compensated
We maintain our positive view of the Thai equity market with a 12-
month forward SET Index target of 1,750, implying a total return of
13%. As we discussed in our previous monthly strategy note “Less
is more,” dated November 27, 2018, we expect the key
macroeconomic drivers and global events to be benign and develop
in a more positive direction in 2019.
We believe our market return analysis provides a useful investor
tool and that investors, at this index level, would be well
compensated by a cycle-high market EPS risk return. Key
conclusions of our analysis are: 1) the implied non-market EPS
return is most volatile; 2) low market EPS risk return coincides with
bad years; 3) the market performed badly when the 1-year yield was
more volatile; and 4) invest when the “1-year forward expected”
market EPS risk return is high.
Key risks to our call are the return of a very hawkish US Fed from a
global point of view and major political turmoil after the upcoming
Thai election in 2019, the probability of which is low, in our view.
These two key factors could significantly increase market volatility
beyond the normal cycles we observed since 2012.
Market risk is well compensated
12-month forward SET Index target is 1,750
As we discussed in our previous monthly strategy note “Less is more,” dated November
27, 2018, we expect key macroeconomic drivers (US interest rate, oil price, yield curve,
Thai policy rate) and global events (US-China trade dispute, BREXIT) to be more benign
and likely to develop in a more positive direction in 2019. As a result, we maintain our
positive view of the Thai equity market with a 12-month forward SET Index target of
1,750 (implying 13% total return). The SET Index looks undemanding currently trading at
a 2019E Bloomberg consensus PER of 13.9x and 2020E PER of 12.6x.
We are off to a good start in 2019 with a SET Index return of 2.1% YTD. Telco and
healthcare are two key sectors that have suffered the most are telcos due to potential
settlement-related expenses and Thai healthcare operators due to potential drug price
controls. If the latter materializes, it would be particularly damaging to the Thai healthcare
sector, as drugs are their most important revenue and margin drivers, while Thai
hospitals generally make much lower profits from doctor fees, meals & accommodation
and tests.
We have conducted a market return analysis in which we have come up with four key
conclusions:
1st
conclusion: Implied non-market EPS return, the most volatile part.
2nd
conclusion: Low market EPS risk return coincides with bad years, and
vice versa.
Equity Research Team
20
3rd
conclusion: Market tended to perform badly when 1-year yield was more
volatile.
4th
conclusion: Buy when “1-year forward expected” market EPS risk return
is high.
We believe current market EPS risk return is at the peak of the cycle, an indicator that
has proven successful in prior cycles as well as being the key supporting reason for our
positive market view. Investors at this SET Index and market EPS risk return would be
well compensated for market risk, in our opinion.
Fig 1 “1-yr forward expected” market EPS risk
return*
Fig 2 “1-yr forward expected” market EPS risk return*
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
Jan-0
8
Dec-
08
Nov-0
9
Oct
-10
Sep-1
1
Aug-1
2
Jul-13
Jun-1
4
May-1
5
Apr-
16
Mar-
17
Feb-1
8
Jan-1
9
STD-2
STD-1 Mean= 4.9
STD+1 STD+2
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
Jan-1
0
Jul-10
Jan-1
1
Jul-11
Jan-1
2
Jul-12
Jan-1
3
Jul-13
Jan-1
4
Jul-14
Jan-1
5
Jul-15
Jan-1
6
Jul-16
Jan-1
7
Jul-17
Jan-1
8
Jul-18
Jan-1
9
STD-2
STD-1 Mean= 4.9
STD+1 STD+2
Source: Bloomberg, KS Research, *using 10-year government bond yield Source: Bloomberg, KS Research, *using 10-year government bond yield
The key risks to our call are a return of a very hawkish US Fed from a global point of view
and major political turmoil after the upcoming 2019 election, which should be of low
probability, in our opinion. These two key factors could significantly increase market
volatility beyond the normal cycles we have observed since 2012.
Fig 3 SET Index and major sectors: Bloomberg consensus forecasts & valuations
ROE (%) Div yld (%)
(11 Jan) % YTD 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2019E 2019E
SET 1,597 2.1 107.3 115.0 126.4 14.9 13.9 12.6 7.9 7.2 9.8 -1.5 -4.3 -14.1 12.0 3.4
Energy 24,319 5.6 2,080.0 2,115.5 2,212.6 11.7 11.5 11.0 9.5 1.7 4.6 8.0 5.4 -1.2 13.8 4.1
Petrochem 1,276 -0.7 145.3 146.9 157.0 8.8 8.7 8.1 11.5 1.1 6.9 23.1 18.4 9.1 15.5 4.6
Banks 516 0.7 49.5 53.4 59.8 10.4 9.7 8.6 11.3 8.0 11.9 -5.7 -10.9 -11.3 10.1 3.8
Telcos 140 -1.5 8.0 9.2 9.4 17.4 15.2 14.9 3.2 14.4 2.4 0.6 2.7 -7.5 5.6 5.3
Commerce 40,490 3.6 1,363.6 1,533.6 1,746.4 29.7 26.4 23.2 1.5 12.5 13.9 -8.0 -10.7 -12.8 21.0 2.2
Property 284 1.7 21.5 23.1 32.9 13.2 12.3 8.6 14.9 7.5 42.6 1.7 -2.5 31.8 13.7 3.7
ConMat 10,644 -0.4 780.7 836.7 894.2 13.6 12.7 11.9 -13.0 7.2 6.9 -17.5 -17.5 -28.6 5.4 3.9
Transport 382 4.9 11.6 12.2 14.9 32.9 31.4 25.6 38.9 4.7 22.6 -1.7 -9.8 15.6 13.5 1.8
Food 11,077 3.0 494.4 627.3 704.3 22.4 17.7 15.7 -24.2 26.9 12.3 -26.6 -19.2 -15.6 8.5 2.6
Healthcare 5,350 -5.1 151.8 169.8 191.8 35.2 31.5 27.9 -6.2 11.8 12.9 0.4 -0.5 6.8 15.4 1.7
Hotel 628 0.4 24.6 26.3 29.5 25.5 23.8 21.3 -4.4 7.0 11.9 5.2 -2.2 -2.2 14.1 NA
Index EPS PER (x) EPS growth (%) YTD EPS revision (%)
Source: Bloomberg, KS Research
Fig 4 SET Index-12-month forward consensus PER
Fig 5 SET Index-12-month forward consensus PBV
21
-2SD = 10.01
-1SD = 11.63
MEAN = 13.24
+1SD = 14.86
+2SD = 16.47
8.0
9.0
10.0
11.0
12.0
13.0
14.0
15.0
16.0
17.0
18.0
Dec-
09
Jul-10
Feb-1
1
Sep
-11
Mar-
12
Oct
-12
May-
13
Nov-
13
Jun-1
4
Jan-1
5
Aug-1
5
Feb-1
6
Sep
-16
Apr-
17
Oct
-17
May-
18
Dec-
18
(x)
-2SD = 1.51
-1SD = 1.69
MEAN = 1.87
+1SD = 2.06
+2SD = 2.24
1.2
1.4
1.6
1.8
2.0
2.2
2.4
2.6
Dec
-09
Jul-10
Feb-
11
Sep
-11
Mar
-12
Oct
-12
May
-13
Nov
-13
Jun-1
4
Jan-
15
Aug-1
5
Feb-
16
Sep
-16
Apr-
17
Oct
-17
May
-18
Dec
-18
(x)
Source: Bloomberg, KS Research, *using 10-year government bond yield Source: Bloomberg, KS Research, *using 10-year government bond yield
We set our SET Index target based on target prices of stocks in the KS Universe and
adjust the base-line target by -10% (bearish) to +10% (bullish), which depends on several
key factors, i.e. economic outlook, broad market valuation, corporate earnings
momentum, etc. While we are more comfortable with global risk factors (i.e. rising US
interest rates, impact of the trade war, a potential spike in oil prices if OPEC reaches a
production cut agreement), we still apply a “modestly bearish” adjustment (0 to -5%) as
the current target already offers a total return of 13%.
Fig 6 SET Index target
Unit: Btm Base-line Bearish (-5% to
-10%)
Modestly bearish (0 to -
5%)
Neutral (0%) Modestly bullish (0% to
+5%)
Bullish (+5% to
+10%)
KS Coverage: Total market cap based on current share price 12,833,481
KS Coverage: Total market cap based on target price 14,486,184
- Upside/(downside) 12.9%
SET Index (11 Jan) 1,597
SET Index target (-3% adjustment = Modestly bearish) 1,803 1,750
Implied 12-months forward PER based on 2020 BB EPS consensus 13.9
Total return (based on 3% dividend yield) 12.6%
Strategist adjustment vs base-line SET Index target
Source: Bloomberg, KS Research
Market return analysis – A good potential
investment tool
2018 was a bad year, but not so bad
Last year (2018) was quite bad as the SET Index dropped from 1,795 at the start of the
year to 1,564, resulting in a negative index return of -10.8%, and -7.8% if including a 3%
dividend yield. From 2008 to 2018, the year 2018 the third-highest negative return vs
43% in 2008 (due to GFC) and -11.9% in 2015 (during the political turmoil in Thailand).
That said, given that there were so many negative factors that created so much market
volatility, i.e., the US-China trade war, a rising US yield curve, Fed’s aggressive rate
hikes (for most of the year), escalating oil prices (for most of the year, as well) and
volatility in emerging markets, the total return in 2018 of -7.8% was actually not so bad, in
our opinion. Compared with other foreign markets, the Thai market performance was
average in local currency while outperformed somewhat in USD terms. Despite volatility
in EMs last year, the relatively strong Thai baht among ASEAN countries was likely
attributed to the country’s financial strength.
22
Fig 7 2008-2018 SET Index’s total market return
(%, ppt) SET Index return (A) Avg div yld (B) Total market return (= A+B)
2008 -47.95 4.80 -43.15
2009 63.54 4.35 67.90
2010 41.39 3.67 45.07
2011 -0.72 3.83 3.11
2012 35.76 3.58 39.33
2013 -6.70 3.27 -3.42
2014 16.30 3.31 19.61
2015 -15.06 3.15 -11.91
2016 20.27 3.17 23.43
2017 13.66 2.91 16.57
2018 -10.82 3.00 -7.82 Source: Bloomberg, KS research
Fig 8 Total returns of EM markets in 2018 (local curr.)
Fig 9 Total return of DM markets in 2018 (local curr.)
-0.4%-2.5%
-5.6%-7.6%
-11.2%
-21.9%-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
Indonesia Malaysia Singapore Thailand PhilippinesChina
(Shanghai)(%)
EMs stock market total returns in 2018 (local currency)
-4.2%
-7.3% -7.6%
-10.0%
-15.0%
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
U.S. France U.K. Japan Germany(%)
DMs stock market total returns in 2018 (local currency)
Source: Bloomberg, KS Research Source: Bloomberg, KS Research
Fig 10 Total market returns of EMs in 2018 (USD
terms)
Fig 11 Total market returns of DMs in 2018 (USD terms)
-4.2%-6.7% -7.4% -7.5%
-10.0%
-26.0%-30.0%
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
Malaysia Indonesia Singapore Thailand PhilippinesChina
(Shanghai)(%)
EMs stock market total returns in 2018 (USD currency)
-4.2%
-8.2%
-11.5%-12.6%
-18.9%
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
U.S. Japan France U.K. Germany(%)
DMs stock market total returns in 2018 (USD currency)
Source: Bloomberg, KS Research Source: Bloomberg, KS Research
Fig 12 Thailand does not share typical EM weaknesses
23
1995 2008 2013 2017 1995 2008 2013 2017 1995 2008 2013 2017 1995 2008 2013 2017
Thailand -8.0% 0.3% -1.2% 11.2% 2.8% -0.3% -1.6% -3.5% 60.0% 29.4% 35.8% 35.3% 0.4 1.2 1.1 1.2
Malaysia -9.7% 17.1% 3.9% 3.1% 0.8% -4.8% -3.8% -3.0% 39.2% 48.0% 60.8% 65.0% 0.7 0.9 0.7 0.5
Indonesia -3.4% 0.0% -3.3% -1.7% 2.2% -0.1% -2.2% -2.9% 63.4% 30.4% 29.2% 34.8% 0.1 0.4 0.4 0.4
Philippines -2.7% 0.1% 4.2% -0.8% 0.5% -0.9% -1.4% -2.2% 49.6% 37.6% 28.9% 23.3% 0.2 0.5 0.9 1.0
China 17.1% 5.9% 2.6% 1.6% -1.0% -0.4% -1.8% -3.7% 14.5% 8.5% 8.9% 14.0% 0.6 4.9 4.4 1.8
Vietnam -12.7% -11.0% 4.5% 4.1% -4.1% -4.2% -6.6% -5.8% 122.0% 22.0% 26.4% 42.0% 0.1 1.1 0.6 0.5
India -1.6% -2.5% -2.6% -1.5% -4.9% -6.0% -4.5% -3.5% 29.8% 18.0% 22.4% 20.0% 0.2 1.1 0.7 0.8
Brazil -2.4% -1.8% -3.1% -0.5% -5.0% -2.1% -2.7% -8.9% 21.5% 15.5% 19.7% 26.5% 0.3 0.7 0.7 0.7
Argentina -2.0% 1.8% -2.3% -5.1% -2.3% 1.2% -2.6% -3.9% 39.0% 42.4% 25.5% 37.0% 0.2 0.3 0.2 0.2
Turkey -1.4% -5.1% -6.7% -5.6% -3.7% -1.8% -1.0% -1.5% 33.6% 36.4% 41.3% 53.3% 0.2 0.3 0.3 0.2
CountryCurrent account (% of GDP) External debt (% of GDP) Reserve / external debt (x time)Fiscal balance (% of GDP)
Source: BOT, IMF, World Bank, CEIC, Bloomberg, KS Research
Quantitative market return analysis – The framework setup
While we believe that we have conducted a sufficient analysis of the Thai market’s
performance from an macroeconomic and bottom-up equity analysis perspective, we look
a bit more this time into the quantitative aspects of the SET Index return in order to find
any determinant factors that could explain the market’s performance. We have developed
an easy framework, as follows:
(1) Total market return = Index return + Index dividend yield where we use the BBG
average index dividend yield.
(2) Market EPS return = Actual market EPS/SET Index-beginning. Note that we
implicitly assume a “buy-and-hold” in our calculation.
(3) Implied non-market EPS return = Total market return (from 1) - Market EPS
return (from 2).
(4) Market EPS risk-return = Market EPS return (2) – risk-free return, where we use
1-year and 10-year Thai government bond yields as proxies.
To simplify the calculation, we use a “buy-and-hold” investment approach to calculate the
market EPS return as a different investment approach can give totally different results.
We remove the risk-free return from market EPS return in order to quantify how much the
market compensates investors for the earnings volatility, i.e. the risky part of the market’s
EPS return. The high market EPS risk return could therefore be due to either a strong
market EPS, low risk-free return, low SET Index level, or a combination of all these
factors. The use of the 10-year Thai government bond yield will reduce market EPS risk-
return but not impact the implied non-market EPS return.
Conceptually, the non-market EPS return is a source of return that cannot be explained
by market earnings, i.e., the so-called market multiple rerating/derating.
Fig 13 SET Index return analysis based on 1-year Thai government bond yield
(%, ppt) SET Index (beg) Actual market EPS Market EPS return Risk free return (Avg 1-yr bond yield) Market EPS risky return Implied non-market EPS return
2008 821.71 64.87 7.89 3.35 4.55 -51.05
2009 449.96 57.65 12.81 1.43 11.38 55.08
2010 734.54 71.69 9.76 1.80 7.96 35.31
2011 1,036.45 82.63 7.97 3.14 4.83 -4.86
2012 1,036.26 89.70 8.66 3.02 5.64 30.68
2013 1,416.66 96.29 6.80 2.61 4.18 -10.22
2014 1,224.62 92.96 7.59 2.12 5.47 12.02
2015 1,497.67 91.09 6.08 1.62 4.46 -17.99
2016 1,288.02 96.44 7.49 1.46 6.03 15.95
2017 1,571.48 100.18 6.37 1.47 4.90 10.20
2018 1,795.45 107.26 5.97 1.56 4.41 -13.80 Source: Bloomberg, KS Research, *2018 market EPS is still forecast.
24
Fig 14 SET Index return analysis based on 10-year Thai government bond yield
(%, ppt) SET Index (beg) Actual market EPS Market EPS return Risk free return (Avg 10-yr bond yield) Market EPS risky return Implied non-market EPS return
2008 821.71 64.87 7.89 4.56 3.33 -51.05
2009 449.96 57.65 12.81 3.88 8.93 55.08
2010 734.54 71.69 9.76 3.61 6.15 35.31
2011 1,036.45 82.63 7.97 3.69 4.29 -4.86
2012 1,036.26 89.70 8.66 3.53 5.13 30.68
2013 1,416.66 96.29 6.80 3.79 3.01 -10.22
2014 1,224.62 92.96 7.59 3.57 4.02 12.02
2015 1,497.67 91.09 6.08 2.73 3.35 -17.99
2016 1,288.02 96.44 7.49 2.18 5.31 15.95
2017 1,571.48 100.18 6.37 2.61 3.77 10.20
2018 1,795.45 107.26 5.97 2.69 3.29 -13.80 Source: Bloomberg, KS Research, *2018 market EPS is still forecast.
1st
conclusion: Implied non-market EPS return, the most volatile part
As we frame our analysis based on how investors are compensated, i.e., risky earnings,
risk-free return and non-earnings return, a brief look into how each return component
performed in the past should be useful. During 2008-2018, the SET Index delivered a
market EPS CAGR of 5.2%, where the average market EPS risk return was 5.8%, 2.1%
for risk-free return and 5.6% for implied non-market EPS return, using the 1-year Thai
government bond as a proxy for risk-free return. The average market EPS risk return
would decline to 4.6% if we the use 10-year Thai government bond instead, though the
implied non-market EPS return would remain unchanged.
While the implied non-market EPS return from a long holding horizon was similar to the
market EPS risk return, it was the most volatile part, as it was -51% in 2008 and +55% in
2009 and +31% in 2012. With a -14% non-market EPS return for 2018, the year, again,
was bad but not the worst. Due to the strong volatility of the implied non-market EPS
return, it is understandable why the mark-to-market gains and losses of investment
portfolios are the most dreadful part for our clients.
Fig 15 Breakdown of total market index return using 1-year government bond yield
(%, ppt) Total return Market EPS risky return Risk free return (1-yr bond yield) Implied non-market EPS return
2008 -43.15 4.55 3.35 -51.05
2009 67.90 11.38 1.43 55.08
2010 45.07 7.96 1.80 35.31
2011 3.11 4.83 3.14 -4.86
2012 39.33 5.64 3.02 30.68
2013 -3.42 4.18 2.61 -10.22
2014 19.61 5.47 2.12 12.02
2015 -11.91 4.46 1.62 -17.99
2016 23.43 6.03 1.46 15.95
2017 16.57 4.90 1.47 10.20
2018 -7.82 4.41 1.56 -13.80
Simple avg 13.52 5.80 2.14 5.57 Source: Bloomberg, KS research
Fig 16 Breakdown of total market index return using 10-year government bond yield
(%, ppt) Total return Market EPS risky return Risk free return (10-yr bond yield) Implied non-market EPS return
2008 -43.15 3.33 4.56 -51.05
2009 67.90 8.93 3.88 55.08
2010 45.07 6.15 3.61 35.31
2011 3.11 4.29 3.69 -4.86
2012 39.33 5.13 3.53 30.68
2013 -3.42 3.01 3.79 -10.22
2014 19.61 4.02 3.57 12.02
2015 -11.91 3.35 2.73 -17.99
2016 23.43 5.31 2.18 15.95
2017 16.57 3.77 2.61 10.20
2018 -7.82 3.29 2.69 -13.80
Simple avg 13.52 4.60 3.35 5.57 Source: Bloomberg, KS research
25
2nd
conclusion: Low market EPS risk return coincided with the bad years
The second conclusion is probably the most important conclusion from our market return
analysis. We found that the low market EPS risk return coincided with the bad years
during which the market performed poorly. During our test period, the bad market in 2008
(-51.1% implied non-market EPS return) coincided with a 3.3% market EPS risk return.
The return went up to 8.9% in 2009 when the implied non-market EPS return was
+55.1%. The weak market EPS risk return in 2011 (4.3%), 2013 (3.0%), 2015 (3.4%) and
2018 (3.3%) coincided with bad years.
We have extended our analysis to find any relationship with sell-side analyst EPS
revisions and found no conclusive relationship. During 2008-18, the upward revision of
market EPS occurred only once in 2010, while the others the years were negative market
EPS revisions, including 2018 at -1.5 ppt. This could be attributed to the fact that sell-side
analysts tend to be positively biased on company earnings. Given that the recent
revisions in the last three years were a negative 2-5%, the accuracy of market EPS by
sell-side analysts was not so bad, in our opinion, given many factors in 2018 that
contributed to global volatility.
Fig 17 Market EPS risk return vs implied non-market EPS return (risk-free-1-yr bond)
(%, ppt) Market EPS risky return Implied non-market EPS return Market EPS revision
2008 4.55 -51.05 -3.24
2009 11.38 55.08 -5.13
2010 7.96 35.31 9.55
2011 4.83 -4.86 -0.52
2012 5.64 30.68 -5.84
2013 4.18 -10.22 -11.05
2014 5.47 12.02 -17.71
2015 4.46 -17.99 -15.59
2016 6.03 15.95 -4.84
2017 4.90 10.20 -2.41
2018 4.41 -13.80 -1.54 Source: Bloomberg, KS research
Fig 18 Breakdown of total market index return using 10-year government bond yield
(%, ppt) Market EPS risky return Implied non-market EPS return Market EPS revision
2008 3.33 -51.05 -3.24
2009 8.93 55.08 -5.13
2010 6.15 35.31 9.55
2011 4.29 -4.86 -0.52
2012 5.13 30.68 -5.84
2013 3.01 -10.22 -11.05
2014 4.02 12.02 -17.71
2015 3.35 -17.99 -15.59
2016 5.31 15.95 -4.84
2017 3.77 10.20 -2.41
2018 3.29 -13.80 -1.54 Source: Bloomberg, KS research
26
3rd
conclusion: Market tends to perform badly when 1-year yield is more volatile
The most interesting conclusion, though not as definitive, is that in some years during
2008-18 the market performed badly when the 1-year government bond yield was more
volatile. This happened in 2015 and in 2018 when the standard deviation of the 1-year
bond yield (divided by the average bond yield) increased from prior years. In contrast, the
less volatile years of 2014, 2016 and 2017 when the SD of the 1-year government bond
was 3.2-3.5%, coincided with the positive market performance. The test was not
conclusive for 2013 as the SD of 1-year bond yield was lower than in 2012.
The relationship could be attributed to investors preferring market stability as well as
visibility in an environment where the bond yield is one of the key factors that can affect
market performance. A volatile risk-free return makes it difficult for investors to price
overall risk.
Note that the pattern was less clear and less conclusive when we use the 10-year
government bond as the risk-free return proxy. 2014 and 2015 were two years that
showed high bond-yield volatility (9.3% and 13.7% respectively) but also in which the
market performed strongly.
Directional change of bond yield did not explain market performance, compared with a
general understanding that a higher bond yield is bad for the market. 2013 and 2015, for
example, were two years with a lower 1-year bond yield but the market performed badly
in those two periods.
Fig 19 Market EPS risk return, non-market EPS return and volatility of 1-year government bond
(%, ppt) Market EPS risky return Implied non-market EPS return Market EPS revision Change in bond yld STD Deviation-bond yield STD Deviation-bond yield/Avg bond yield
2008 4.55 -51.05 -3.24 -1.52 0.50 14.98
2009 11.38 55.08 -5.13 -0.46 0.23 16.10
2010 7.96 35.31 9.55 0.86 0.27 14.76
2011 4.83 -4.86 -0.52 0.58 0.35 11.19
2012 5.64 30.68 -5.84 -0.31 0.14 4.73
2013 4.18 -10.22 -11.05 -0.40 0.11 4.26
2014 5.47 12.02 -17.71 -0.27 0.07 3.45
2015 4.46 -17.99 -15.59 -0.54 0.20 12.58
2016 6.03 15.95 -4.84 0.04 0.05 3.51
2017 4.90 10.20 -2.41 -0.10 0.05 3.16
2018 4.41 -13.80 -1.54 0.34 0.15 9.73 Source: Bloomberg, KS research
Fig 20 Market EPS risk return, non-market EPS return and volatility of 10-year government bond
(%, ppt) Market EPS risky return Implied non-market EPS return Market EPS revision Change in bond yld STD Deviation-bond yield STD Deviation-bond yield/Avg bond yield
2008 3.33 -51.05 -3.24 -2.15 0.77 16.84
2009 8.93 55.08 -5.13 1.65 0.39 10.01
2010 6.15 35.31 9.55 -0.57 0.38 10.45
2011 4.29 -4.86 -0.52 -0.41 0.21 5.83
2012 5.13 30.68 -5.84 0.24 0.19 5.47
2013 3.01 -10.22 -11.05 0.36 0.28 7.41
2014 4.02 12.02 -17.71 -1.06 0.33 9.28
2015 3.35 -17.99 -15.59 -0.28 0.13 4.86
2016 5.31 15.95 -4.84 0.15 0.30 13.74
2017 3.77 10.20 -2.41 -0.25 0.15 5.71
2018 3.29 -13.80 -1.54 -0.02 0.13 4.72 Source: Bloomberg, KS research
4th
conclusion: Buy when “1-year forward expected” market EPS risk return is high
Before we move to the 4th conclusion, our readers need to understand that our market
return analysis has so far been based on the historical “actual” data, i.e. “ex-post”, which
requires a certain methodology in managing/sanitizing the data. From now on we are
about to look at “ex-ante” data, i.e. “1-year forward expected” market EPS risk return for
27
both past and forecast data. We need to stress this point as it can quite easily lead to
confusion in interpreting the numbers.
The simple, but powerful conclusion is to buy the market when the market EPS risk return
is high. This conclusion is built upon our 2nd
conclusion, i.e. the market will perform badly
when “actual” market EPS risk return is low. The high “1-year forward expected” market
EPS risk return normally happens when the market performs poorly, i.e. low SET Index,
relatively good market EPS, lower bond yield or a combination of all three factors. It also
can be interpreted in another way that the market compensates investors more for
earnings risks when the market outlook is “poor”.
In hindsight, this strategy worked well in the test period. The 2008 high for “1-year
forward expected” market EPS risk return was 13.7% (Dec 5, 2008, airport closure) with
the SET Index at 393, a level that provided investors with a very strong portfolio return.
The subsequent cycle-peaks in 2010 (market EPS risk return at 6.39% based on the 10-
year bond yield; May 28, 2010, 2010 May incident), 2011 (7.11%, October 21, 2011,
2011 major floods), 2014 (5.29%, January 3, 2014, 2013-14 political turmoil) and 2016
(5.61%, February 12, 2016, no major events) were all followed by strong market
performances.
The weakness of this investment strategy is that the “cycle-peak” is always revealed in
hindsight, and thus the implicit but very crucial assumption is that key factors that
influence the market in each cycle can be “different” but “in aggregate” need to create
a “similar level of volatility”. This is easily said but it is very difficult to quantify the level
of volatility when we are amidst the cycle. The market always tries to discount all
available good and bad news and the correction or rebound happens when the discount
has been too little or too much.
That said, it will be a total disservice to our clients if we just simply ignore all this market
return data and the conclusions. We believe that our analysis still provides a useful tool
for investors to make their decisions, especially when the market condition is not so
favorable.
Note that the market EPS risk return based on the 10-year government bond yield shows a
more pronounced pattern.
Fig 21 “1-year fwd expected” market EPS risk return*
Fig 22 “1-year fwd expected” market EPS risk return*
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
Jan-0
8
Dec-
08
Nov-0
9
Oct
-10
Sep-1
1
Aug-1
2
Jul-13
Jun-1
4
May-1
5
Apr-
16
Mar-
17
Feb-1
8
Jan-1
9
STD-2STD-1 Mean= 6.1STD+1 STD+2
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
Jan-0
8
Dec-
08
Nov-0
9
Oct
-10
Sep-1
1
Aug-1
2
Jul-13
Jun-1
4
May-1
5
Apr-
16
Mar-
17
Feb-1
8
Jan-1
9
STD-2
STD-1 Mean= 4.9
STD+1 STD+2
Source: Bloomberg, KS Research, * using 1-year government bond yield Source: Bloomberg, KS Research, * using 10-year government bond yield
28
KBank THB NEER Index
USD/THB vs DXY Index
30
31
32
33
34
35
36
37
May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Jan-19
85
87
89
91
93
95
97
99
101
103
105
USD/THB DXY Index, RHS
Source: Bloomberg, KBank Source: Bloomberg, KBank
Thailand’s GDP
Thai inflation parameters
3.63.1 3
3.43.9
4.34
4.94.6
3.3
0.7 0.7 0.71.2 1.2 1.2
0.4
2.0
0.9
0.00
1
2
3
4
5
6
2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18
GDP (%YoY) GDP (%QoQ sa)
-2
0
2
4
6
11 12 13 14 15 16 17 18 19
Headline Inflation Core Inflation
Upper Bound Policy Target Lower Bound Policy Target
Source: NESDB, KBank Source: Bloomberg, KBank
Implied forward curve: TGBs
Implied forward curve: USTs
1.80 1.852.00
2.112.19
2.262.34 2.37
2.45
1.781.821.90
2.092.21
2.32 2.362.44 2.47
2.54
2.74
1.681.73 1.77
1.76
0.75
1.25
1.75
2.25
2.75
3.25
0 1 2 3 4 5 6 7 8 9 10
06/02/2019
next 3 months
next 6 months
next 12 months
tenor, yrs
2.402.49 2.55 2.52 2.49 2.50
2.582.69
2.49 2.462.55
2.642.76
2.462.47 2.48
0.75
1.25
1.75
2.25
2.75
3.25
0 1 2 3 4 5 6 7 8 9 10
07/02/2019
next 3 months
next 6 months
next 12 months
tenor, yrs Source: Bloomberg, KBank Source: Bloomberg, KBank
Foreign holding of Thai fixed income and stock
Foreign net buy/sell in Thai markets
603 629
878
105
-389-400
-300
-200
-100
0
100
200
300
400
500
600
700
800
900
10 11 12 13 14 15 16 17 18 19
Thai government bonds, THB bn BOT bonds Thai stocks, est since 1999
-23.9
6.1
71.0
45.2
-21.4
-51.9
-10.4 -7.8
-64.3
-14.0
-0.36.6 -0.4
41.5
22.2
-2.9
-48.7
-10.6
-100
-60
-20
20
60
100
140
Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18
Net buy bond Net buy equity
Source: Bloomberg, ThaiBMA, KBank Source: Bloomberg, KBank
29
Disclaimer
“This document is intended to provide material information relating to investment or product in discussion and for reference during discussion, presentation or seminar only. It does not represent or constitute an advice, offer, contract, recommendation or solicitation and should not be relied on as such. In preparation of this document, KASIKORNBANK Public Company Limited (“KBank”) has made several crucial assumptions and relied heavily on the financial and other information made available from public sources, and thus KBank assumes no responsibility and makes no representations with respect to accuracy and/or completeness of the information described herein. Before making your own independent decision to invest or enter into transaction, the recipient of the information (the "Recipient") shall review information relating to service or products of KBank including economic and market situation and other factors pertaining to the transaction as posted in KBank’s website at URL http://www.kasikornbankgroup.com and in other websites including to review all other information, documents prepared by other institutions and consult financial, legal or tax advisors each time. The Recipient understands and acknowledges that the investment or execution of the transaction is the transaction with low liquidity and that KBank shall assume no liability for any loss or damage incurred by the Recipient arising out of such investment or execution of the transaction. Each Recipient including its employee or officer who receives this document or a copy of the document represents and agrees not to reproduce, distribute or provide it in whole or in part to any other person and agrees to keep confidential all information contained therein. In the case of derivative products, where the Recipient provides incomplete or inaccurate information to KBank, KBank may not be capable of delivering information relating to investment or derivative products appropriate to the genuine need of the Recipient. The Recipient also acknowledges and understands that the information so provided by KBank does not represent the expected yield or consideration to be received by the Recipient arising out of the execution of the transaction. Further the Recipient should be aware that the transaction can be highly risky as the markets are unpredictable and there may be inadequate regulations and safeguards available to the Recipient. The Recipient acknowledges that there may be conflict of interest under the KBank’s services, whether directly or indirectly and should further consider the character, risk and investment return of each KBank’s product by reading details from relevant documents provided by KBank. KBank reserves the rights to amend either in whole or in part of information so provided herein at any time as it deems fit and the Recipient acknowledges and agrees with such amendment. Where there is any inquiry, the Recipient may seek further information from KBank or in case of making complaint; the Recipient can contact KBank at (662) 888-8822.”