Global markets have been reacting negatively to reports of the new Covid-19 variant, which was first found in South Africa and currently found in different countries such as Israel, Hong Kong and some European countries such as UK, Germany and Italy.
As panic first hit the stock market last Friday, concerning that the new variant could be transmitted faster than the delta variant Dow Jones dropped 905.04 or 2.53% to close at 34,899.34 points on Thanksgiving Day. Meanwhile, S&P 500 shedded 2.27% and Nasdaq plunged 2.23%.
Thailand’s SET Index fell 7.85 points or 2.30% to 1,610.61 points on Friday and extended the loss into Monday, closing at xxxx.
The international benchmark Brent crude fell 11.50% to close at $72.72 a barrel last Friday while the West Texas Intermediate dropped 13% to $68.15 per barrel. However, the price of both contracts regained some ground on the following Monday as Brent crude increased 4% and WTI rose 4.64% at 16:03 local time in Thailand.
Maybank Kim Eng Securities (Thailand) (MBKET) maintained a positive view on Thailand’s oil and gas sector, stating that it is too early to conclude the severity of the variant but uncertainty will weigh on sentiment.
MBKET remained cautiously optimistic that Thailand will refrain from enforcing new restrictions, but the situation remains fluid. Pre-emptive measures to ban flights can start to impact jet fuel spreads. With the driving season over in the West, gasoline spreads will continue to ease, dampening GRM. Interestingly, the securities company stated that it could see chemical spreads rise on lower naphtha prices (in line with crude) while China’s dual-control policy keeps chemical prices elevated in the region.
Within MBKET’s coverage, IVL and PTT are in a relatively better position. Integrated PET spreads rose 53% MoM to USD400/t on the tight polyester market in China (impacts 55% of IVL’s PET volume). PET accounts for roughly 50% of IVL’s EBITDA. PET demand was resilient during past Covid-19 outbreaks. Key risk is mobility restrictions in Europe (33% of IVL’s business). Meanwhile, PTT has historically outperformed during periods of volatility/uncertainty given its diversified portfolio and stable gas business. At current valuation, MBKET saw high margin of safety while dividend yield is decent at 5.9% for FY22E.
