We remain in a cyclical long term bull market!

Yet, I remain bullish and hold on to my forecast of 800 on the SET benchmark index by year-end. Of course I realize this is rather upbeat and to many perhaps "totally unrealistic".  It may even take a few months into next year to materialize but my point is not of exact timing, rather that the direction remains on the up. We here remain in a cyclical long term bull market and long term investors will be rewarded in time, this is my own firm conviction.

The Thai Bank stocks, yet again and as usual for many years now, disappointed the local market with their chronic higher then expected NPL levels, not even mentioning "bad boy" KTB which got its senior management shaken-up. While I share some of the guilt this time around, it is amazing how overly super bullish most local analyst were on these Bank counters, early this year. Even most foreign fund managers still believe the entrenched & pervasive view that "in the past as now Bank stocks always lead the way higher". Wrong again, as Bank stocks have for years regularly underperformed.

It was not so long ago that Bank and Finance stocks lead market parlor talk in every serious discussion around and about the SET. Yet, today it is becoming increasingly obvious that Banks are laggards and Chemicals, Energy and others are the "nouveau" leaders. Perhaps the most overpaid of all analysts will be the last to catch on to this?

Can the SET pass 800 without the heavily market weighted Bank stock leadership?  I think yes.

Finance stocks are all but down and out as the silent voice of the local market is well ahead in understanding that new leadership has long been formed and that the old stars, are the new dogs. Let's not forget that in past SET bull markets Finance and Bank shares (besides Communication & Property) were always among the top relative performers. Times' change and analyst & fund managers whom have not seen this yet should do the same, or seek other jobs. Are they objective or just behind the times?

There remain a whole bunch of great local value stocks which have excellent dividend yields, are globally competitive and trade at 1/3 or more of a discount, to the SET average valuations. For years I here argued they are the real new local "investment jewels".  Instiutions and individuals alike should focus on these.

Currently there are various senior analysts whom compute valuation levels of select SET stocks, accounting for only the largest of big cap.s. Obviously such a skewed tabulation shows what we here know for very long: very liquid large SET companies are artificially overvalued, overtraded and overhyped. These experts so then wrongly conclude that the Thai stock market is "expensive" compared to the region -and so less attractive. They then blast this view around. But this is a distorted view -worthy of critique.

Many, many SET stocks are in fact much cheaper then their regional counterparts -but to those bloated funds which must invest millions of Dollars per individual stock, yes indeed many Thai large caps look either expensive. What else is new? The reality is finally setting-in that Thai Bank stocks have lost their vogue long ago. Wake-up Charlie!

I here long advocated the view to such institutions to invest less if need be, but to instead own the better values. They are less filling and taste great. Most of all, their cash dividend yields are several times higher compared to their larger counterparts which anyway, arer often not in industries which Thailand is globally competitive at.

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Now to the reasons why I think 800 on the SET index is not so far off:

First, I think once this index passes 670 the traders/speculators will get massively excited on passing this major resistance level and there are not many technical barriers until we close in on 800. Getting past this 670 barrier will prove more difficult then getting to 800, I think.

Second, once the US election is over there is a real possibility that global Oil prices will drop, perhaps a lot. Especially so, if the Bush loses the election. Watching the first presidential debate this morning gave me some reason to believe that Mr. Bush is far from certain in winning. The CNN poll I saw so far showed Mr. Kerry won the debate and by far. I agree.

Third, Mr. Thaskin, the Thai PM, is loosing some of his popularity now which means he will have to try harder and become less arrogant. This can only be viewed as a net new un-expected positive. He also seems finally determined to now launch a war on corruption, vowing to spend his "spare money and a broom" to minimize all forms of graft. So to lift the country's credibility -and thereby boost global investor confidence. Also, the Thai consumer remains in full force and while many believe the Thai economic vibrancy comes solely from exports to the US; I would not undermine the sustainability of Thailand's consumer -besides interegional trade.

Fourth, third quarter SET earnings to be released over the next 6 weeks will show that listed Thailand keeps (for the most part) delivering strong earnings growth compared to a much lamer developed world -which is stuck in a long low growth mode. Many institutional investors are finally loosing their long ill love affair with the Bank stocks and so looking beyond these proven laggards. I am convinced they must and will do so.

Surely there are negatives as well, like higher inflation next year, potentially more global terrorism besides regional health scare issues. But investors seem less scared and "freaked" about these now -and realize the alternatives are a "guaranteed loss". As both Thai Bond and even more so Thai saving accounts, return less than 0%;, adjusted for higher inflation rates next year.

All in all I remain upbeat and never lost conviction that the current market rut is nothing but a healthy correction in a still long way to go cyclical Thai bull market. I for one would remain invested in our various & diversified core value & high dividend stock selections.  Of course these are my view and as always, always diversify!

Best Regards,

Paul A. Renaud.

Relative valuations on some key other markets around the world:

Adjusted for high growth and political stability, Thai stocks are far from overpriced. Remember, the SET benchmark index is highly tilted toward large cap.s Many of our value selections have higher growth and dividend rates, besides are valued at 1/3 or less compared to their big cap counterparts. Liquidity has a huge (and underserved) premium on the SET.