​          With the Covid-19 lock-down slowly easing, SCB Securities Co., Ltd. (SCBS) sees money markets resuming to almost normal, but that no more “easy returns” can be expected. The SET Index upside is limited, while valuation seems to be reasonable due to COVID-19 impacts.  Despite lower short-term risk, long-term uncertainties could become visible.  Investors are advised to adopt cautious views for the service sector due to three major risk factors, 1) a slow recovery; 2) an increasing default rate for SSMEs and SMEs; and 3) geo-political risk.

          For 3Q20 investors should explore defensive portfolios, focusing on stocks with valuations aligning with economic fundamentals and growth stories tying in with the new round of economic growth, and cyclical stocks with lower expectations, such as ADVANC, BBL, BCH, ERW, HANA, and IVL.  Meanwhile, it is worth noting that investors should maintain top picks from 2Q20, such as BDMS, BEM, BTS, and CPF.  Based on economic fundamentals, SCBS forecasts the SET index hovering around 1,430 points in 2021.

​          SCBS Managing Director in charge of the Research Group Mr. Sukit Udomsirikul noted that with lock-down measures easing around the globe, economic activities have slowly resumed amid signs of recovery.  With support from central banks, the manufacturing sector is expected to return to normal in 4Q20, while the service sector will be yet to fully recover.  A new normal can be expected in 3Q20 with the discovery of new vaccines.  It is believed that the worst is over, however Thailand and the EU may experience slower recoveries, compared to the US and north Asia where a lower portion of revenues are contributed by the service sector. 

​          Money markets have recovered and are operating almost as normal.  Liquidity and credit risks have been declining with support from central banks, in parallel with stable fund flows and credit spreads.  With the market returning to normal, any downside is seen as limited.  We expect rotation to valuation and cyclical stocks, but “easy returns” are no longer expected. 

​          In 3Q20, investors should focus on defensive strategies as the Thai economy will be slowly resuming growth over the next 1-3 years.  Therefore, long-term investment portfolios should buy high quality defensive stocks, such as basic consumer and medical products.  Despite rotation to the cyclical group, as supported by a slow economic rebound that is likely to be ongoing, we recommend a group of stocks with lower expectations, such as those in the energy, petrochemical, and banking segments.   

​          There are some other risk factors affecting the economy and investment in the future.  Despite predictions that the global and Thai economies have bottomed out in 2Q20, going forward it is likely that there might be certain downside risks dampening economic growth forecasts even further.  Three key risk factors consist of: 1) Fewer economic stimulus measures, especially in the US.  Lately, money markets worldwide have  switched to risk-on mode due to the Fed’s policy rate cut to 0% and QE measures allowing unlimited purchase of bonds by the US government; 2) The new wave of COVID-19 as faced by the US during mid-June in Texas, Florida, California, and Arizona, leading to an exponential increase in new infections, prompting concern among experts; and 3) The risk of a potential cold war between the US and China, believed to be a new gradually forming risk and which may pose the biggest obstacle to economies and investment in the future.  The risk has been prompted by the US urging China to import more, the renewal banning of Huawei and ZTE for another year, and new legislation passed by Congress empowering the US government to revoke registration of Chinese companies from stock exchanges if they do not conform with regulatory requirements.

​          SCBS has singled out top picks for 3Q20 with valuations based on fundamentals and stories tied in with the coming growth cycle, rather than an increase in valuation alone, as follows:

• A defensive portfolio featuring top picks from 2Q20 comprising BDMS, BEM, BTS, and CPF; and new defensive stocks expected to offer returns better than the market, comprising ADVANC and BCH.

• A tactical portfolio focusing on high quality stocks with pricing movement in line with global and local economic situations, comprising BBL, ERW, IVL, and HANA.