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THE NATION Monday, April 27, 2009 9A


VIGILANCE ON WORLD OIL PRICE TRENDS IMPORTANT Apparently, oil price has faded from news headlines after peaking around US$147 per barrel in July last year. Having said this, the oil price has gradually climbed from its low of $30/barrel to around $50/barrel in recent weeks. To many, this raises the question of where the oil price is heading next. To answer this, a lot can actually be learned from the shape of the crude-oil futures curve, which is a line graph of forward prices of different months of delivery. Last year, spot prices of oil fell below their futures prices, causing the futures curve to form a shape known as “contango”. This means that forward prices for closer delivery dates are lower than those of further delivery dates (the opposite development is called “backwardation”). For example, during Q4 2008, the time spread – the difference between 12-month and onemonth forward prices – was as high as $30/bbl, which prompted the name “Super-contango”. What caused this super-contango? Following the global econ-

omy meltdown, oil demand declined more rapidly than supply, pushing down spot prices and widened the time spread. Though this development opened an opportunity to arbitrage away the super contango, tightening world liquidity meant that any investment that requires high lumpsum upfront is difficult because the strategy needs cash ANAWAT to buy physical crude and store it until the delivery time. Usually, there is a very close relationship between the shape of futures curve and the change in crude inventory. Contango typically indicates that crude stock is accumulating (and backwardation is vice-versa). Hence, the fact that the super-contango has subsided to a normal contango (ie, the decrease in the 12monthone-month time spread) in

recent weeks may imply that inventory accumulation is diminishing. Thus, a reassessment of global oil demandsupply condition is in order. According to International Energy Agency (IEA), the rebalance of the oil market is in progress as global oil demand is improving, at least from the houseUENBANTERNG hold sector in OECD countries. Although industrial demand has continued to shrink, recent signs of stabilising in Global Purchasing Manager Index (PMI) may indicate future improvement of industrial demand for oil. On the supply side, non-Opec output continues to decline while Opec remains strict on its production target. Prospects of tightening world oil supply therefore raises concern on future avail-




ability of energy as well as potential increased price volatility. The flatter contango, thus, could be signal from the markets that oil demand will soon outpace supply, especially if the economy recovers at the end of the year as many people have anticipated. Of course, lots of uncertainties remain. But, what’s certain is that the world’s oil is limited and that tighter oil market makes its price more vulnerable to any shocks, be it rising demand or supply disruption. Higher oil price, whatever its cause, could re-emerge as a threat to oil-dependent economies, like Thailand, that are in a fragile recovery stage from the present global crisis. Sooner or later, we will need a serious energy master plan that truly strengthens our economic resilience against the next oil price shock. TANAWAT RUENBANTERNG, Economist, Domestic Economy Department, Bank of Thailand. Views expressed are the author’s own.


SET INDEX LIKELY TO SUSTAIN CLIMB Removal of emergency, undervalued market to be tempting


he Stock Exchange of Thailand (SET) should continue its upward trend this week following the government’s lifting of the state of emergency in and around Bangkok. Risk premiums should fall, favouring market valuation. Trading sentiment has improved a lot, according to AD Line, Chaiyaporn which measures broad-based stock movements. The market usually rises by an average of 20 per cent before seeing a major correction. The time span for this is about two months. If the statistic bears out, I expect the SET index will rise to its previous high of 488 soon. Over the last two weeks, a lot of money went into commodity-related stocks such as oil, coal, steel, petrochemicals and shipping.

SET50 SOARS 3 PER CENT IN POSITIVE WEEK The SET50 Index last week rose 12.36 points or 3.86 per cent from the previous week, while the SET50 Index Futures with the nearest contract maturity S50M09 expiring in the end of June surged 11 points or 3.49 per cent. Thai shares mostly moved in positive territory throughout last week despite a spate of negative news, including the Bank of Thailand’s lowering of its 2009 GDP forecast from 02 per cent to a contraction of 1.5-3.5 per cent. The Federation of Thai Industries estimates that the Thai labour situation will hit a crisis in the second quarter. Exports in March dropped 23.1 per cent. T h e buying spree was seen obviously last Friday when the government announced the lifting of the state of emergency. The SET index closed at 474.04 points last week. The local political situation, which remains uncertain, will still pressure the stock market and the economy in the long run. Among overseas stock markets, the Dow Jones Industrial Average last week was in high fluctuation. The index gained 127.83 points on April 21 when US Treasury Secretary Timothy

This reflects the fact that investors are starting to take more risks, and have more confidence in an economic recovery. This week investors should look to domestic plays. Our stock picks are Preuksa Real Estate, Total Access Communication, Airports of Thailand and Thai Vegetable Oil.

TISCO SECURITIES Thai equities have continued to advance in recent days despite the Songkran political violence and heavy selling by foreign investors. One key driver has been the Abhisit government’s attempts to heal the country’s

deep political divide by proposing political reforms and a possible amnesty bill. Another factor is the SET’s sharp discount to the region. The Thai market is currently trading at a 2009 price-to-equity ratio (PER) of 8.5 times, a huge discount of 40 per cent over the average PER of 14.2 times for regional peers.

Lingering concerns over Thailand’s political stability are likely to limit the upside for the SET in the very near term, although we expect Thai equities to soon resume their bear market rally. Sentiment should be supported by further gains on global stock markets and better than expected 2009 first-quarter results by US banks amid growing perceptions that the worst of the global recession is behind us. Tourism, banks and industrial estate developers could suffer the biggest fallout from Thailand’s latest bout of political strife. Our current GDP estimate of minus 3.9 per cent for this year is already below consensus estimates, but we may need to lower it to nearer minus 5 per cent. Note that we have downgraded our ratings on major banks due to rising NPL risks and the sector’s disappointing results. Aggregate 2009 first-quarter earnings for the seven banks under our coverage fell by 22 per cent yearon-year, while gross NPLs rose to 7 per cent of loans from 6.5 per cent in the fourth quarter of 2008. However, we have upgraded our target prices for petrochemical stocks to reflect a recent recovery in demand.

SUMMARY APRIL 20-24 Daily Average

Weekly Total

Open interest* (contracts)

Volume (Bt m)

SET 50 Index Futures






SET 50 Index Options











All Market

Volume (contracts)

Volume (Bt m)

Volume (contracts)

PRICE MOVEMENT Price (Index point) 340

Volume 10,000

SET50 330




S50 M09





300 2,000 290

Local investor

Local institution



0 r2 Ap 0 r Ap 21 r2 Ap 2 r2 Ap 3 r2 4

Head of Research, Bualuang Securities



Source: Thailand Futures Exchange

Geithner was upbeat about the US financial institution sector. But it fell sharply after Morgan Stanley reported poor first-quarter earnings and the International Monetary Fund issued a warning that the world economy this year would contract 1.3 per cent. The average trading volume last week on Thailand Futures Exchange surged from the previous week to 8,767


contracts a day, an 18.31-per-cent increase, while open-interest contracts as of last Thursday were 33,843 or a 2.07 per cent rise. Weekly trading volume numbered 43,833 contracts worth Bt15.24 billion. Of the total contracts, 39,216 were SET50 Index Futures, 553 were Single Stock Futures, 3,411 were Gold Futures and 653 were SET50 Index Options.

Given high market volatility in 2009, we continue to favour defensive consumer plays and utilities. We also maintain our view that the SET is currently enjoying a bear market rally and advise short-term investors to use corrections to buy quality beta stocks in the energy, property and construction sectors.

VAJIRALUX SANGLERDSILLAPACHAI Executive Director, Trinity Securities The SET Index continued climbing last week to close at 474 with a significant rise in daily turnover of above Bt17 billion. Overall market sentiment confirmed our view of a bear market rally with a shortterm target of 520 in the next few weeks. However, we expect some correction this week, due mainly to overbuying and other negative factors. Vajiralux A stress test of the 19 largest US banks scheduled to be released on Friday will be the key risk to the global stock market, especially for the financial sector, this week. The results, expected to be announced on May 4, will answer questions about whether US banks need a further capital injection, and of how much. The Bank of Thailand recently revised its 2009 GDP forecast from 0-2 per cent growth to a contraction of minus 3.5 to minus 1.5 per cent. However, Trinity expects a GDP contraction of minus 4 per cent this year. A slowdown in the global economy and poor domestic demand are key pressure factors for this year. However, there are some positive signs. The revoking of the state of emergency in the capital and easing political violence should restore foreign investors’ confidence in the Thai stock market. The first-quarter earnings of the banking sector, released last week, look quite satisfactory when compared to economic indicators and other sectors. Aggregate firstquarter net profit was Bt21.5 billion, up sharply from 71 per cent quarter-on-quarter, due to a low base effect, but down 19 per cent year-on-year. Banking stocks performed well over the past month, particularly deep-discount medium-sized and small banks. We expect some correction for outperforming stocks and recommend switching to large banks with stronger balance sheets and lower risk, including Siam Commercial Bank and Kasikornbank. The first-quarter earnings for the energy sector look unimpressive for exploration and production, refineries and petrochem. The best performer should be the coal industry. We select PTT and Banpu as top buys.

Managing NPLs in times of crisis The painful lessons learned from The political turmoil in Thailand and the global economic crisis will cause the crisis of 1997 indicate that there is problems of non-performing loans no quick-fix mechanism to solve the (NPL) to re-emerge in Thai financial problems. It took more than 10 years institutions, but on a lesser scale than to reduce the NPL ratio from 48 per during the ‘Tom-Yum Gung” crisis of cent to less than 6 per cent. To solve such huge NPL problems, 1997. Nevertheless, if not properly managed, Thai banks’ NPL ratio could Thailand has established many instiescalate from single to double-digits. tutions and instruments to facilitate The central bank deputy governor debt-restructuring through court and said on March 25 that the ratio of NPLs out-of-court processes. Examples are to total credit at Thai banks had the Central Bankruptcy Court, assetincreased from 5.6 per cent in management companies, Corporate Restructuring Advisory December to 5.9 per cent in February. Debt This escalation was caused by the eco- Committee, Court Mediation Centre and SME and Financial Advisory nomic downturn. The aftermath of political instabil- Centre. The governity will likely put ment has also more pressure on revised the the downward trend Bankruptcy Law of the economy. and procedures, Thailand’s GDP in the tax regime 2009 is now foreand the landcast to contract by transfer fees. A 4.5 per cent to 5 per tax exemption cent compared to and reduction of earlier forecasts of land-transfer around minus 2 to fees were offered minus 2.4 per cent. TUMNONG DASRI to creditors and It may be even worse than this if the measures of various debtors who restructured their debts governments fail to counter the glob- according to the Bank of Thailand’s al economic recession. US Federal notifications. Frameworks and venues Reserve chairman Ben Bernake said were also established for creditors and last week that the fallout from the cri- debtors to facilitate out-of-court negotiations. sis will likely be felt for a long time. It’s undeniable that these instituThe extent of the crisis was confirmed in The Economist magazine’s tions played major roles in the reducpoll of forecasters on March 7, which tion of NPLs, an achievement that subfound that the real GDPs of most sequently supported the economic industrialised countries in 2009 recovery. Some of the aforementioned would contract. The US GDP is institutions and instruments are still expected to contract by 2.2 per cent; active. The government and other relJapan (minus 5.3 per cent); Eurozone evant stakeholders should revise the (minus 2.4 per cent); Germany frameworks, debt-restructuring insti(minus 3.2 per cent); and Britain tutions and venues, to facilitate debtrestructuring negotiations to ascertain (minus 3.1 per cent). Therefore, it is unavoidable that the whether NPL problems are a threat to political unrest of April, coupled with economic recovery. We cannot afford to wait until the the world financial crisis, will prolong the economic recovery of Thailand, NPL ratio reaches double-digits and which in turn will accelerate the accu- becomes even harder to fix. mulation of bad assets in the banking system. TUMNONG DASRI is former director How can the NPL problem be alle- of the Bank of Thailand’s Debt viated and the NPL debtors rescued? Restructuring Department



“The economy is going forward as the stimulus package has started working.” Yi Gang, vice governor of the People’s Bank of China.

page-qTODAY PAGE-1011.SECTIONA.27Apr09  

Budget cut: The Internal Trade Department’s opera- tions are expected to suffer next year as the government has abruptly cut its budget by m...

page-qTODAY PAGE-1011.SECTIONA.27Apr09  

Budget cut: The Internal Trade Department’s opera- tions are expected to suffer next year as the government has abruptly cut its budget by m...