Top Down Strategy and Large Cap Stock Picks - the DBS Vickers ...
Top Down Strategy and Large Cap Stock Picks - the DBS Vickers ...
Top Down Strategy and Large Cap Stock Picks - the DBS Vickers ...
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Regional Equity <strong>Strategy</strong> Q4 2007<br />
<strong>Strategy</strong> Overview: Asian Equity<br />
Malaysia (<strong>Down</strong>grade to Benchmark weight) vs Thail<strong>and</strong> (Upgrade to Overweight)<br />
We are downgrading Malaysia in favour of a Thail<strong>and</strong> upgrade. The trade off is based<br />
on <strong>the</strong> following changes in <strong>the</strong> past three months: -<br />
a. Both countries will probably have elections within <strong>the</strong> next six months. Thail<strong>and</strong> has<br />
announced <strong>the</strong> elections date on December 23, but Malaysia has still yet to decide<br />
on one. Our ground checks suggest that Malaysia's elections will probably be next<br />
year. Although we do no rule out <strong>the</strong> possibility of Thail<strong>and</strong>'s elections to be delayed<br />
due to <strong>the</strong> King's birthday, <strong>and</strong> Asian games in December, <strong>the</strong> elections should be<br />
held in January at <strong>the</strong> latest.<br />
b. The sentiments toward <strong>the</strong> elections were different in <strong>the</strong>se two countries; Thail<strong>and</strong><br />
is for a change <strong>and</strong> Malaysia for goodies, or ra<strong>the</strong>r, more goodies. Hence elections<br />
in Thail<strong>and</strong> will be <strong>the</strong> earlier <strong>the</strong> better <strong>and</strong> Malaysia <strong>the</strong> later <strong>the</strong> better. As such<br />
we feel that market impact from elections will be greater in Thail<strong>and</strong> than in Malaysia.<br />
c. Economic <strong>and</strong> corporate earnings growth in Thail<strong>and</strong> hit ano<strong>the</strong>r low in <strong>the</strong> second<br />
quarter. Meanwhile upgrades for 2008 has emerged. <strong>DBS</strong> Economics has upgraded<br />
2008 GDP from 5.1% to 5.5% in anticipation of more investment spending to come.<br />
Fig. 45: Thail<strong>and</strong>: Consensus 12m forward GDP growth<br />
trend vs SET index performance<br />
%<br />
%<br />
8.0<br />
140<br />
7.0<br />
6.0<br />
5.0<br />
4.0<br />
3.0<br />
2.0<br />
02 03 04 05 06 07 08<br />
12m fwd GDP growth (L)<br />
<strong>DBS</strong> forecast<br />
2008: 5.5%<br />
120<br />
100<br />
-20<br />
-40<br />
d. Thail<strong>and</strong> has been attracting a fair volume of funds<br />
flow in <strong>the</strong> last three months prior to <strong>the</strong> global<br />
equities correction. It is hence difficult to build a<br />
position without bidding up prices. Our sense is<br />
that excesses have been filtered out in this correction<br />
<strong>and</strong> it will be a good time to build <strong>the</strong> position<br />
towards <strong>the</strong> elections. We should see incremental<br />
fund flow as sub-prime concerns recede.<br />
80<br />
60<br />
40<br />
20<br />
0<br />
SET yoy% (R)<br />
Fig. 46: Thail<strong>and</strong>: Consensus earnings trend for 2007<br />
- 2009 earnings<br />
%<br />
120<br />
2009<br />
116<br />
112<br />
2008<br />
108<br />
104<br />
100<br />
2007<br />
96<br />
Feb Mar Apr May Jun Jul Aug Sep<br />
Fig. 47: Cumulative net foreign buying since beginning<br />
of 2007<br />
US$mil<br />
4500<br />
4000<br />
3500<br />
3000<br />
2500<br />
2000<br />
1500<br />
1000<br />
500<br />
0<br />
-500<br />
Jan-07 Mar-07 May-07 Jul-07<br />
22
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