A January rally, a single selection and falling long term interest rates recently.
Today December 10 2005, I here dare to select one stock pick which I think can move-up, yes even in the shorter term. While this selection will move around with the mood of the general SET index, I also think a January rally should materialize next month.
Recently I got a mail from a member asking me what my strongest stock pick is, at this very moment. Some members might be planning a new project or home purchase and so want to allocate capital to the SET before this. Others agree with me that a SET rally in January '06 might well be in the cards. The reason is that foreign institutions by next month will want back some Thai stock exposure, this after selling out in recent months.. Year 2005 was not a good one for the SET benchmark index (after all most missed TICON, TCB, ROJANA, HMPRO etc..) and so no institution wants to show it owned lots of Thailand, by year-end 2005.
Yet, in January they will want back-in, as year 2006 should see a rebound after a long period of consolidation. The Thai market has been underperforming since year 2003 and is set for a catch-up. (I agree and have since late August felt that global oil prices would finally correct or stabilize and so give support to a firmer SET. So far I have been wrong on the SET due primarily to political factors recently).
I of course recognize Thai politics might create some unexpected ups and downs from here on, but am not overly concerned about this. 12-15 years ago local politics was all allot messier and still the SET market rallied. In those days the p/e ratio for the market as a whole was allot higher, along with general level of interest rates. In investment finance, the leverl of P/E's should move in the opposite of the level of interest rates.
Thai long term interest rates have actually been dropping recently a bit. This is a silent bullish signal if it can keep up, or just hold on. Most all expect interest rates to just rock higher, but at least recently, the opposite has happened. (On the long side of the curve anyway -meaning long term, not short term interest rates). The longest term quoted bond here is the 10 year Thai government bond rate. A month ago the current yield was around 6.6 to 6.7%, but just recently its been around 6%. Yet no business newspaper or broker reports, that I saw, reported this recent retrenchment.
You can see/monitor the yield curve in Thailand at this link/website, from the "Thai Bond Dealing Center" http://www.thaibma.or.th/yieldcurve/YieldTTM.aspx Its a good site to visit from time to time as long term interest rates are a very important rational determinant of stock prices, over time.
There you can insert a given date from the past and see where the interest rates are just then, for a chosen giving number of years to maturity. (I don't know why maturities are shown longer then 10 years, as to my understanding 10 year is the longest traded Bond). Be careful inserting a given date from the past as I think weekends or some other dates will just show an error. If so try another similar date. However it's clear that as compared to a month ago, or say 5-6 weeks ago, long term interest rates in Thailand have taken a definite correction to lower levels. (Recently this market change has been reflected in the TFUND for example, which bounced back from 9.7 to trading around 9.9 per unit. The TFUND is a touch higher now then before it went XD, just 3 weeks ago).
But back to where I started, here is my answer to the first paragraph:
To buy shares before a project is launched is always risky, as "a stock does not know you own it". Meaning, it could be the stock moves up, just after you needed the money, or the stock goes down just the week you need that capital. "Murphy's law" is so often at work. :)
When a married couple saves up for a new home, they often ask these sort of questions to their financial investment pro. As they got a pool of capital saved-up and now want to make it work, just before buying their dream home in the near future. I suggest they don't invest with money earmarked for a dream, their home purchase. The timing...its just too risky. And if they do so anywya, they should not ask others for a "blessing".
Having said this, the one stock I think should do well, yes I think even in the shorter term, is SPALI. (2.24). My view is to get a good position of this top 5 property developer. The 2005 and expected 2006 P/E is so very low, the expected annual dividend very high at near 10%, and the stock held-up rather well during the latest market sell-off. Supali company is in good to excellent financial standing and has many favorable projects set to yield strong earnings in the 4 Q and all next year. With a p/e for year 2006 below 5, its far too undemanding in my view. SPALI shares trade well and the stock is featured in my micro cap model, even while it"s a mid cap. Insiders have been buying and my view is and remains a "strong buy". My take is that this single stock should do well in the near to medium term, assuming the SET goes into rally mode past 700. This I expect well before the end of the first quarter next year. I visited this company last month and came away very excited due to strong earnings momentum for next year and beyond.
Also, remember I never make recommendations, I just share viewpoints. . So here then is my not unlcear viewpoint, just a couple of weeks before New Year 2006! Always diversify your stock portfolio
Best Regards,
Paul A. Renaud.
www.thaistocks.com
