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The SET has gone straight down since Friday last week, after the U.S. Labor Department released the nonfarm payrolls report for October showing 271,000 jobs were added to the U.S. economy, far exceeding the consensus expectations of a 180,000 jobs gain. The index closed at 1,382.46 on Friday, down 2.27% for the week, dragged down by the financials and resources sectors. According to the June 2015 SET fact sheet, the combined weights of the financials and resources sectors in the index are over 40%.
Shares of Siam Commercial Bank, the worst performer in the financials sector, tumbled 2.55% this week, as the bank and Krungthai Bank had to deal with the collapse of Sahaviriya Steel Industries. The other big Thai banks, Bangkok Bank and Kasikorn Bank, were not involved in the steel company bailout, but are still facing double-digit increases in nonperforming loans.
Shares of energy companies including PTT plc, top constituent of the SET50, tumbled 6.79% for the week to close at 276 baht a share, along with crude oil prices, which took a 8.51% nosedive this week. International Energy Agency
(IEA) Executive Director Fatih Birol told CNBC on Tuesday that they could not rule out the scenario that crude oil prices would remain close to $50 a barrel until the end of 2020, before rising gradually back to $85 a barrel in 2040.
The IEA also said in its November report, released on Friday, that global stockpiles of crude oil have reached a record 3 billion barrels and demand growth is forecasted to slow to 1.2 million barrels a day in 2016. Low crude prices will drag down the profits of energy companies for years, and that will not be good for the SET since it is weighted heavily in the resources sector.
Additional SET selling pressure is also mounting as the U.S. Federal Reserve is planning to hike interest rates in December. The federal funds futures, traded on the Chicago Mercantile Exchange and commonly used to estimate the market’s views on the likelihood of changes in U.S. monetary policy, indicate 30.3% odds for a quarter-point rate hike and 69.8% odds for a half-point rate hike at the Fed's December FOMC meeting, according to data from the CME Group as of November 13.
Fear of the Fed rate hike has sent the Thai baht weakening against the U.S. dollar. The USD/THB exchange rate was quoted at 35.9 baht per dollar on Friday, up 0.84% in November. The spread between the Thailand 10-Year Government bond yield, yielding at 2.72%, and the U.S. 10-Year Treasury Note yield, yielding at 2.27%, has now narrowed to 0.45 percentage points. This will likely trigger capital outflows and another wave of foreigner selling on the SET. Foreign investors’ selling for the SET seems to have picked up again, with net sells this month of about 5.42 billion baht. The foreign investors’ net sells on Friday alone was 2.48 billion baht.
From our technical viewpoint, the bearish ascending broadening (ASC/B) wedge chart pattern has now emerged. The bullish higher low (H-L) chart pattern, meaning every low is higher than the previous low while every high is higher than the previous high, has broken down as the SET closed below 1,387.75. The index is still being supported by a trendline support (T/S) at the 1,382 level. The 1,382 support level might not hold, as selling pressure could increase due to the Paris terrorist attacks.
There are two key technical supports at 1,375.99, or December 2014 low, and at 1,370, the lower trendline support (T/S) of the ascending broadening wedge. A breakdown of the ascending broadening wedge at 1,370 could send the SET back to the base of the wedge at about the 1,320 level, or below the 1,300 level. |
