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Experts spy value in small, mid-cap Thai stocks
EconSep 11. 2020
By The Nation
Experts have advised investors to lean towards Thai stocks in small- and mid-cap companies, which are forecast to perform better than large-cap stocks.
Over the past eight months, smaller stocks on the Stock Exchange of Thailand (SET) and Market for Alternative Investment (MAI) have outperformed their large-cap counterparts, despite sharp drops driven by the Covid-19 crisis in the first quarter this year.
In the second quarter, the smaller-cap MAI and sSET indices rose 4.8 per cent and 1.9 per cent respectively, while the SET and SET100 fell 3.4 and 7.3 per cent.
When market growth rate is low, investors will pay premiums for stocks that show grow potential, said Trinity Securities assistant managing director Nuttachart Mekmasin.
In terms of three aspects – fundamentals, share value and liquidity – small and mid-cap stocks had earned stronger market sentiment than large-caps,” he said.
Brokerages had also cut their profit forecasts for large-cap stocks more than for small- and mid-cap stocks, he added.
“In 2021, we expect returns on sSET stocks to rise by three times compared to a 20 per cent rise for SET50 stocks,” Nuttachart said.
In terms of share value, he said the price to earnings ratio (P/E) of SET50 stocks is still higher than sSET stocks.
In terms of liquidity, he said the money supply (or M2) had increased significantly since March this year, while individual investors continued to make net buys in stocks every day.
“Increased M2 money supply is often in line with trading by individual investors and growth in small- and mid-cap stocks, so we believe that small- and mid-cap stocks will perform well in the fourth quarter of this year,” he said. Meanwhile after large-cap stocks’ recovery, investors would be disappointed by their third-quarter performance.
Sunthorn Thongthip, Kasikorn Securities chief of analysis, said the price of smaller stocks would rise faster after they were hit by mass sell-offs during the Covid-19 crisis.
“Also, the price of small-cap stocks often increases when the market rises, as investors are ready to take more risks with remaining liquidity,” he said.
As such, the price of small-cap stocks would increase until the US Federal Reserve decided to tighten monetary policy, he added.
However, “the Fed will maintain interest rates at near zero until 2022 and loosen monetary policy to stimulate the US economy, so we expect the price of small-cap stocks to increase more than large-caps,” he said.
“Therefore, mass sell-offs of small-cap stocks followed by positive Covid-19 vaccine news will enable investors to buy back these shares,” he added.
On small- and mid-cap stocks, Trinity Securities advised buying shares whose profit will increase until 2021 or perform better than 2019, while Kasikorn Securities advised investing in companies unaffected by the Covid-19 fallout and benefitting from a Covid-19 vaccine.
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