A dialogue with an institution from far away.
Here is how an institution wrote me this week -and how I answered them, evenwhile I did not have to...so then to share with all members.
Hello Paul,
Many thanks.
Thai market has already had a really strong run in 2017 to hit 24 year high level. Prior to the run this year it indeed lagged but has caught up the underperformance with peer regional markets. Agree that there is upside but it has run and become expensive relative to overall earnings growth. Not many cheap stocks around.
What sectors and stocks do you like?
Cheers,
Mikael,==================================================================================================
Here is how I answered:
Mikael,
The SET indexed hoovered just above 1600 3 years ago, at which time I advocated selling and took a long 3 month holiday, touring all over USA. Since then the index moved around long and boring at similar levels. Yes, in September it catched-up some but this was mostly confined to a select large cap stocks which dominate the index. Currently being a touch above 1700 due to a global resurgence of stocks. Thailand's SET index hence barely moved up average 2.5% per year, since...all of which came since last September '17.
Its one of the only regional index which has not set a post '97 Asian crisis new high. But I predict it shortly will.Most smaller/mid cap stocks, the sector I know so well, did nothing or declined since early 2015. This was in part justified as earnings did not grow or in some cases disappointing. Some stocks did move up but then so many settled back down. This in part has to do with the very inept Thai brokers and their many ill-practices which has resulted retail investors to reduce Thai stock market exposure. Presently retail investors make up less then 50% of average trading volume vs. more then 75% in years long past. If any consumer product lost market share like this mgt. would be fired, but the local broker industry just continues as if nothing was wrong. This is the sad case here of the broker industry failing.
Besides this long consolidation period (3 years) and a catch up-phase now overdue, the bullish presently rest with reality of Thai economic growth which is accelerating, the Thai Bah which is viewed/proven to be a firm currency and the very likelihood of elections by next November '18. Not least unlike other countries in SE Asia the near zero probability of interest rates moving up next year, not least due to Baht currency continued strength besides very low consumer price inflation -besides very low unemployment.
Smaller cap stocks will catch up because 1) in some cases earnings will grow 30 to 50% next year or more, 2) there are a number a very attractive turnaround situations and 3) dividend yields will rock up on selective stocks which are oversold! This will almost by definition fuel a resurgence and catch up of mid cap and smaller cap stocks. As earnings rebound into year 2018 p/e ratio's will drop and make many look investor attractive again.
For sure one has to be very selective and research and company information is very difficult to gather for the novice for all the reasons many of us know all too well. But with near 30 year on location and experience I am set up to excel on that.
Paul A. Renaud. www.thaistocks.com
