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The SET bounced off the 1,412 level when it opened for trading on Friday, as the relative strength index (RSI) and the Moving Average Convergence/Divergence (MACD) pointed to the extremely oversold conditions. The market has set aside bearish fundamentals for now because as the saying goes, “It doesn’t matter until it matters,”. The 1.6% run-up was not all that bullish though, as the net sells for Thai small investors registered 2.9 billion baht, while the net buys for foreign investors was about the same.
On the surface, it may look like a zero sum game. In a bearish trend, however, this could mean that small investors were selling into the rally while the foreign investors were covering their short positions. Foreign investors had been selling over 200 billion baht of equities in July, resulting in the net sells of about 24.6 billion baht.
It is interesting to see that not just the foreign investors want to lighten up their positions in the Thai stock market. The Thai Social Security Office (SSO) told Bloomberg this week that they will buy 3.5 billion baht of equities in Europe, Japan and Southeast Asia by the end of December, due to the sluggish Thai equity markets.
According to Bloomberg, the SSO, which manages pension contributions from about 14 million Thai employees at private companies and businesses, is also seeking the board’s approval for increasing funds, from 3% to 26% of total assets by 2018, to invest in international equities. Maybe everyone else in Thailand should follow the same strategies.
For the week, the SET managed to gain 2.04 points to close at 1440.12. The USD/THB exchange rate broke the key technical level at 35 baht per dollar and surged at an intraday high of 35.28 baht per dollar on Friday, before pulling back to close at 35 baht per dollar. Our near-term target for the USD/THB was 35.2 baht per dollar with the long-term head resistance, February 2009, at 36.31 baht per dollar. For the week, the USD/THB exchange rate inched up 0.26%.
From the Fed’s statement after the U.S. FOMC meeting on Wednesday, the Fed made it clear to the market that that they will hike the rate this year, regardless of the tepid U.S. economy. The bond markets seem to think that the Fed is bluffing as the yield spread between the U.S. 10-Year Treasury Note, yielding at 2.187% at the close on Friday, and the Thailand 10-Year Government bond, yielding at 2.82%, now widened to 0.633%.
The yield of the U.S. 10-Year Treasury Note tumbled 3.56% on Friday, as more bad news for the Fed was released by the Labor Department, saying that the employment cost index (ECI), the broadest measure of labor costs, edged up just 0.2%, the smallest gain since the series started in the second quarter of 1982. Economists polled by Reuters had forecast the employment cost index rising 0.6%. The number suggested that wages and salaries in the U.S. are going nowhere, despite a tight labor market.
From our technical viewpoint, the SET continues moving in a lower high (L-H) chart pattern since it peaked in February, meaning every high is lower than the previous high while every low is lower than the previous low. This lower high chart pattern signals a continuous bearish downtrend. The L5 level at 1,401.06 may now emerge with the near-term head resistance at 1,452.
The headline risks for next week are U.S. non-farm payrolls report and China’s stock market rout. The U.S. Bureau of Labor Statistics will release the jobs report on Friday, 12:30 PM GMT. The market is expecting a 225K jobs gain. The Shanghai composite index, which closed on Friday at 3,663.73, is threatening to break through a key technical support level at 3,624.73. The index could be heading further south to revisit the low 3,000 level, if the 200-day SMA can’t hold. If the Shanghai composite index goes, so goes the SET. |
