InnovestX Securities (IVNX) has identified an uptick in economic uncertainty, which is expected to sustain high market volatility in the coming period, with a tendency towards a downside trend, particularly during episodes of retaliatory actions.
IVNX anticipates that the economic impact could slow GDP growth in 2024 to 1.4%, exerting pressure on the Earnings Per Share (EPS) for the SET index, dropping it by 8.8% to 86 THB. The downside scenario for the SET index is targeted at 1,032 points.
IVNX states that companies with predominantly domestic revenue streams may endure global economic volatility more effectively, especially those with pricing power and the ability to pass on rising costs. Additionally, stocks likely to benefit from falling oil prices and interest rate cuts stand to gain advantages as well.
Highlighted stocks in these thematic categories include BCH, CPALL, CPAXT, GULF, MTC, OR, and TRUE. In the short term, it is advisable to avoid sectors directly impacted by exports to the United States, such as electronics parts, automotive, rubber, agriculture, and jewelry. Also, indirectly affected sectors, including industrial estates, tourism, and banking, should be approached with caution.
More downward revisions may be seen during the announcement of Q1 2024 earnings season over the next 1-2 months. Although the impact of the imposed tariffs might not be evident in Q1 2024 outcomes, economic risks are becoming clearer. The sensitivity analysis reflects the projected implications on SET estimates arising from U.S. retaliatory tariffs on Thailand at a 36% rate. Although the direct export impact on the SET index remains limited (accounting for 11% of the previous year’s profits), the broader economic slowdown’s indirect effects could permeate through all sectors.
INVX evaluates that the export sector’s impact will reduce GDP by 1.1%, based on an assumption of an average U.S. import tariff of 15% globally (including Thailand). Anticipating partial negotiation success, the repercussions on SET profits are estimated to decrease to 86 THB, still showing a 16% YoY growth at a PE ratio of 12 times, lower than the historical moving range of 14-16 times.
Further consequences of oil prices are considered if the global economy, especially in China and the U.S., slows more than expected, potentially impacting oil demand and driving prices below INVX’s latest Brent crude assumption of $72 per barrel. Should the average oil price decrease by 10% or settle at $65 per barrel (compared to a YTD average of $75 per barrel), it could affect the SET index’s profit forecast by 2.5 THB, with the downside estimate moving towards 1,000 points.
