UOBKH/AR09 [web] - ChartNexus

12
Economic Review & Outlook 2010 (continued)
Despite the challenging external environment, Singapore’s
economy was relatively resilient. This was underpinned by the
government’s proactive measures to boost the economy through
an expansionary 2009 Budget and measures such as Jobs Credit
Scheme and Special Risk-Sharing Initiatives (SRI).
Outlook for 2010
UOB Economic-Treasury Research forecasts 2010 GDP growth at
5.8%, in line with the Ministry of Trade and Industry’s (MTI)
forecast of 4.5-6.5% GDP growth in 2010.
Looking ahead, evidences of a further economic recovery looks
to be gaining ground. The service industries, particularly retail,
and hotels, are expected to enjoy a boost from the opening of
the two integrated resorts in 2010. Supporting this is a strong
17.5% rise in Jan 10’s tourist arrivals. Singapore Tourism Board
(STB) forecasts a 19-29% rise in 2010 tourist arrivals.
Stock Market Review for 2009
After bottoming out in Mar 09 at 1,459.95, the FSSTI rallied 99%
from its low to end 2009 at 2,897.62. The sharp turnaround in
the FSSTI was in line with regional markets, which recovered on
coordinated government stimulus measures and expectations of
improving corporate earnings.
As a result of the market’s strong recovery from its bottom in Mar
09, sectors that underperformed the FSSTI included low beta
and resilient sectors such as land transport, media and
telecommunications. Conversely, sectors that enjoyed the
strongest recovery in share price include Supply Chain, Plantation
and Property.
Stock Market Outlook for 2010
Singapore is well-placed to benefit from the global economic
recovery. The banking sector is well-capitalised. The expected
recovery of corporate loans will complement consumer loan
growth and it is expected to drive loan growth of 5-8% in 2010.
Although the macroeconomic newsflow for Singapore remains
upbeat, we believe investors may take a measured approach to
Singapore’s stock market after the FSSTI’s 65% rally in 2009.
Therefore, we advocate a balanced approach to the market,
preferring a combination of high dividend yield stocks as well as
stocks with company-specific catalysts.
T H A I L A N D
Review of 2009
Despite the sharp contraction during the first three quarters of
the year as a result of the global economic crisis, Thailand’s GDP
grew 5.8% in the last quarter on the back of strong exports
recovery, given the faster-than-expected economic recovery of its
trading partners, steady expansion in public spending and
recovery in household consumption expenditure. Thailand’s fullyear
GDP contracted 2.3%, better than the consensus estimate of
2.5-3.5% contraction. Headline inflation declined to -0.9% due
to weaker oil price as well as the government’s measures to ease
the high cost of living. Core inflation stood at 0.3%.
Outlook for 2010
For 2010, UOB Economic-Treasury Research has forecasted Thai
GDP growth of 4.3%, which is at the top range of the consensus
but appears possible if there is no delay in the resolution of the
suspension of capital-intensive projects at the Map Ta Phut
industrial estate, political situation kept under control and public
spending under the Strong Thai Scheme progresses smoothly.
Other growth catalysts include increasing household income in
tandem with domestic economic recovery, a decline in
unemployment rate to its normal rate of around 1-1.2%, and rising
farm income from high agricultural prices. The Thai baht/ US$
exchange rate of Bt33 is likely to strengthen towards the end of
2010. Inflation has been on an uptrend since 4Q09 but it is still
within control. Thus, the policy rate will be kept at 1.25%, at least
until the middle of 2010.
Stock Market Review for 2009
Overall, the Stock Exchange of Thailand (SET) Index performed
better in 2009 than 2008, both in terms of price levels and trading
values despite all political and economic crises, domestically and
worldwide. In 2009, the SET Index closed at 734, an increase of
63% over year-end 2008. In 2009, the Index reached the highest
level of 751.86 and lowest level of 411.27. The top five best
performing sectors are Agriculture (+175%), Construction
Materials (+112%), Petrochemicals (+107%), Banking (+105%)
and Agro and Food (+104%). Daily average trading value was
US$525.6m, up 12.5% over 2008. Foreign investors made a major
shift from being net sellers in 2008 with a position of US$4.91b
to net buyers in 2009 with US$1.15b.
Stock Market Outlook for 2010
Given a modest pick-up in corporate profitability this year, the
SET Index is likely to advance at a slower pace compared to 2009.
Based on the bottom-up approach using 2010 target price for
stocks under our coverage and consensus estimates for non-rated
stocks, the SET Index has around 15-20% upside from the current
level to reach 863. The major drivers of the Index’s rise are:
a) an economic recovery with GDP growth of 3-4%, b) doubledigit
net profit growth and c) the injection of massive public
spending under the Strong Thai Scheme. Our investment strategy
for 2010 focuses on sectors which offer good earnings growth.
We prefer Banks on their good earnings growth and attractive
valuations. Small-cap sectors like Media, Contractors and
Healthcare are recovery plays. Earnings growth for the Energy
sector will be good but its prospects are clouded by the unclear
outcome of the Map Ta Phut issue.