Global stock markets faced a rollercoaster week as the market kicked off Monday and Tuesday with a sharp plunge in concerns of the ongoing war in Ukraine and economic slowdown in China due to another omicron outbreak. The market made a significant rebound on Wednesday prior to the final day of the Fed’s meeting, while the Chinese government aimed to introduce stimulus plans to keep economic activities going. The market on Thursday was positive with an in-line Fed’s rate hike with expectations. To end this week, the market moved in both positive and negative territories as investors shifted their focus back to Russia and Ukraine.
Focusing on the Thai stock market, FSS International Investment Advisory (FSSIA) stated earlier this week that fears of stagflation have triggered a sell-off of risk assets across the globe, including the SET Index, as the likelihood of concurrently rising inflation driven by high energy prices and an economic slowdown is rising.
However, the advisory believed that the recent 5.8% sell-off on the SET Index has already priced-in the worst impact of the Russia-Ukraine war since 24 Feb-22.
FSSIA expected an average USD100/bbl Brent crude oil price in 2022, up from the current USD75/bbl and a 3.4% GDP growth as forecast by the Bank of Thailand.
To assess the earnings downside risks, FSSIA conducted stress tests on the SET Index with a high crude oil price and weaker GDP growth for Thailand using both top-down and bottom-up approaches. As a result, FSSIA said it found that the downside risk to the SET Index would be 3.9% to 1,567 via the top-down approach and 2.8% to 1,584 via the bottom-up approach.
Following the rise in oil price and implications from potentially lower GDP and higher inflation, FSSIA said that energy companies are expected to greatly benefit from the high prices of oil and inflation, given the strong demand outlook that should allow downstream refiners to pass through the rising costs to end users, while upstream producers would enjoy wider margins on rising average selling prices.
- Strong volume growth y-y for PTTEP and BANPU should further drive up their net profit growth on the back of higher margins.
- Long term, energy companies should continue to enjoy solid demand growth from 2H22 onwards on the global economic recovery post Covid-19 pandemic.
Among three major commodities, FSSIA said coal is the most attractive thanks to the limited supply and higher demand as a substitute fuel for oil and gas.
- Gas price is now at the highest level due to the European gas supply risk, but FSSIA said that it thinks the global LNG price should subside in 2H22 when new supply from the US comes on stream.
FSSIA stated that it believes the positive impact of higher prices would more than offset weaker GDP for the domestic market as demand growth for refined oil products has been strengthening since 3Q21 as a result of the more normal living conditions after a period of lockdowns.
