SCB Securities Co., Ltd. (SCBS) believes that the outbreak of the COVID-19 Omicron strain will impact the economy and investment in 1Q22. Without proper control by 1Q22, the disease could jeopardize the Thai economy’s growth rate and the operating performance of listed companies in 2022, as previously predicted. SCBS sees the SET Index fluctuating between 1,550 and 1,750 points this year. SCBS has selected ten outstanding stocks exhibiting good growth at reasonable prices, including those that will benefit from the new world trend of transforming business structures. The economic outlook for 2022 is based on three assumptions and five predictions, which include: 1) COVID-19 becoming endemic as a result of widespread vaccination; 2) the global tourism industry recovering by 60-90%; and 3) supply bottlenecks beginning to ease.
The five predictions are as follows: 1) global economic activity will return to normal in 2022; 2) global inflation will fall in the second half of 2022; 3) global monetary policy will tighten before returning to normal, with the exception of China, which continues to ease its monetary policy to balance its economy; 4) the Cold War between the US and China will intensify; and 5) The slowing Chinese economy, global financial market volatility, global stagflation risks, global climate volatility, and the outbreak of the COVID-19 Omicron strain (which may be more severe than the Delta strain) are all risk factors that must be closely monitored.
However, if the Omicron variant outbreak is not properly contained by the first quarter of 2022, the global economic growth rate in 2022 is likely to fall from 4.9% as predicted earlier by the IMF to 3.6%. In terms of the Thai economy, the GDP growth rate for 2022 is at risk of falling from 3.6 % to 2.5% if the plan to reopen the country to tourists is delayed, including the government’s resumption of tightening economic activities in the country.
Based on fundamentals, the 2022 SET Index should stand at 1,660 points and move between 1,550 and 1,750 points. SCBS recommends ten stocks that will perform well in 2022, including KBANK, AMATA, ZEN, LH, and GULF, as well as stocks that will benefit from the modern business transformation trend, such as DELTA, ADVANC, ONEE, SECURE, and XPG.
SCBS Research Group Managing Director Sukit Udomsirikul stated that despite the global COVID-19 crisis, stock market volatility has decreased for the year 2021. As can be seen, stock markets around the world, including the Thai stock market, have recovered quickly. Despite the fact that the pandemic is still considered severe, the SET Index has recovered to pre-COVID-19 levels. This is because governments all over the world have accelerated economic stimulus measures and pumped money into financial markets at an unprecedented rate and intensity. Low interest rates and rising inflation have prompted investors to shift their money to higher risk stock markets.
Economic activity is expected to return to pre-COVID-19 crisis levels in 2022, implying stable GDP growth, slower inflation, rising interest rates, and tax increases to balance the government’s financial position. Finally, returns on stock market investments are expected to fall from 2021.
The rate of growth in developed economies (DM) will slow down. According to the IMF, GDP will grow at 4.5%, while the rate of growth in emerging markets (EM) is expected to recover at 5.1% in the latter half of 2022 as countries are reopening. With more and more people getting vaccinated, tourism and hospitality businesses will recover, partially offsetting the reduction in economic stimulus measures designed to boost consumption during the COVID-19 outbreak in 2020-2021. The new outbreak of the Omicron strain, on the other hand, is viewed as a risk that could cause economic forecasts to fall short of expectations.
Based on a “carefully positive” view, Thai economic trends in 2022 are expected to recover to 3.6 – 4.0% growth from a -6.1% contraction in 2020 and 1.0% growth in 2021. Exports are expected to grow by 2%, and approximately 8 million foreign tourists are expected to enter the country. Profits at publicly traded companies will increase by 6% yoy, driven by a 3 – 4% increase in GDP. SCBS estimates the SET Index’s yield to be 5% by the end of 2022, and 8% when dividends are factored in. In the worst-case scenario, the Thai economy’s growth rate could be reduced to a mere 2.6 % if the Omicron strain spreads unchecked, with listed companies growing at or near zero percent.
For investment strategy, investors should focus on growth stocks at reasonable prices, which are divided into two groups: 1) stocks that are expected to return to growth following the economic cycle and the opening up of more economic activities, such as KBANK, AMATA, ZEN, LH, and GULF; and 2) stocks that are likely to grow exponentially and benefit from modern business transformation trends, such as DELTA, ADVANC, ONEE, SECURE, and XPG.
Investment views for individual stocks:
- KBANK: A digital banking leader, with an expected increase in net profit in 2022 due to lower credit costs.
- AMATA: Land transfers from key customers in the energy, automotive, and logistics sectors are expected to improve beginning in 4Q21 and continue through 2022.
- ZEN: The resumption of economic activity, particularly during the easing of the COVID-19 situation, will have a positive impact on its 2022 profit forecast.
- LH: The company is ready to launch new projects that will increase by 50% with the relaxation of LTV regulations for second and third homes.
- GULF: Over the next seven years, its power plant capacity is expected to grow by 12.4% per year on average, with profit sharing from INTUCH investments helping to stabilize net profit.
- DELTA: The company will benefit from its existing customer base in the electrical vehicle, clean energy, and telecommunications sectors.
- ADVANC: The company is likely to pay more dividends in 2022 due to a lower investment budget and the benefits of metaverse business trends.
- ONEE: Assuming that the advertising industry has reached bottom, the company will begin to recover in 2022.
- SECURE: Data security will become even more important in the digital age.
- XPG: Following its entry into the digital asset business, its 2022 results will turn around.
