In this briefing:
- 2019 Elections – Part 1. Thailand: Magic Moment for Democracy’s Return?
- BCP: More Stable Income with an Attractive Yield
- A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies
- U.S. Tech Stocks Are Leading Market Higher.
1. 2019 Elections – Part 1. Thailand: Magic Moment for Democracy’s Return?
After nearly five years of rule and multiple false starts, the military junta has announced an election that paves the way for a return to democracy (under a new constitution). Although the rules of the game favor the military, do not count out the pro-Thaksin PTP opposition party from a strong showing. Above all else, markets would like to see a smooth election process and uncontested results. Still, even in the case of a dispute, Thailand’s strong sovereign balance sheet suggests a relatively muted reaction in risk assets unless violence erupts and poses harm to domestic confidence and the tourism industry.
This insight is Part 1 of a six-part series on 2019 elections in which we evaluate key polls and their potential to re-shape the economic outlook and investment risk profiles. These six markets – Thailand, Indonesia, India, South Africa, Greece and Argentina – collectively represent one-quarter of the world’s population and more than $5 trillion in GDP. We review distinct domestic challenges as well as campaign pledges by incumbents (and their challengers) aimed at addressing them. We also humbly assign probabilities to baseline and alternative scenarios and their implications for macroeconomic outlook and investments.
Even amidst their diversity, these six jurisdictions display some remarkable similarities: subdued economic momentum, bouts of market volatility, signs of voter disquiet and/or disillusionment and an opposition looking to capitalize on all of these forces. In a bid to revive the ‘magic’ that had helped to install their administrations, many incumbent governments are now on the defence – either changing tack (and dialing back past policies) or attempting to convince voters to let their policies work their magic.
Summary – Election timeline, political risk classification and market implications:
Election date (2019) | Degree of uncertainty | Baseline scenario (%) | Market implications | Market view | |
Thailand | 24 March | Medium to High | Elections are held and pro-junta PP keeps control (65%) | Medium to Low | THB: Stable unless political uncertainty erodes confidence, tourism ThaiGB: Stable CDS: Gradually wider SET: Energy, materials and capital goods favoured. More upside in non-bank financials vs financials. |
Indonesia | 17 April | Low | Jokowi re-elected, PDIP coalition intact (75%) | Medium | IDR/IndoGB: Constructive INDON: Stable JCI: prefer energy, materials, services, capital goods, transportation,and telco.Cautious on main banks. |
India | April to May | High | BJP/NDA retain power, with smaller majority (60%) | High | INR/IGB: Steeper curve (bearish long-end) CDS: Wider on potential negative sovereign outlook Nifty: Cautious healthcare and banks. Overweight IT. |
South Africa | 7-31 May | Medium to High | ANC retains power (80%) | High | ZAR/SAGB: Constructive SOAF: Constructive JSE Top40: Constructive on Financials. Cautious on consumer. |
Greece | 20 October | Medium to High | ND returns to power (52%) | Medium to High | GGBs/CDS: Scope to tighten vs periphery peers AEX: Banks may revive though European credit markets need to be watched. Energy, Infra, and utilities offer opportunity. Gaming too. |
Argentina | 27 October | High | Cambiemos retains power (52%) | High | ARS/Argtes: Peso richly valued but slower inflation positive for Argtes ARGENT: Volatile Merval: Volatile. Optically cheap valuations signify risk and weak growth. Hydrocarbons could be a winner. Cautious on consumer. |
Historical 5yr CDS (Argentina and Greece = LHS, all others RHS):
Historical equity indices (rebased where 1 Jan-2018 = 100):
Please refer to other insights in this series:
- Elections 2019 – Part 1. Thailand: Magic Moment for Democracy’s Return?
- Elections 2019 – Part 2. Indonesia: Jokowi’s Policies – Magic Bullet or Bitter Pill?
- Elections 2019 – Part 3. India: Modi’s Magic Touch Fades as Populism Makes a Comeback
- Elections 2019 – Part 4. South Africa: Ramaphosa – ANC’s Magician?
- Elections 2019 – Part 5. Greece: New Democracy Promises Magic Makeover
- Elections 2019 – Part 6. Argentina: Macri Magic and the Peronist Spell
This series is co-authored by Paul Hollingworth at Creative Portfolios and Virgil Fernandes Esguerra.
2. BCP: More Stable Income with an Attractive Yield
We initiate coverage of BCP with a BUY rating, based on a target price of Bt41, which is derived from a sum-of-the-parts (SOTP) methodology and imply to 10.2xPE’19E to bring it in line with the Thai energy sector.
The story:
- Attractive dividend yield of 6-7% a year
- Refining business set to recover in 2019
- Hidden value from non-core business
Risks:
- Raw material price fluctuation
- Possibility of impairment losses from investment projects
Background: Established in 1940, Bangchak Corporation Public Company Limited and its subsidiaries ‘ operations include refinery, oil trading, petroleum product marketing and renewable energy businesses. With a capacity of 120,000 barrels per day, Bangchak produces and distributes its products through more than 1,000 service stations nationwide. It also plans to expand the scope of its business to cover food and convenience stores and novel product businesses and to seek investment opportunities in bio-based products and natural resource businesses.
3. A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies
Our analysis shows that there are an unbelievable 25+ LNG developers that have stated (within the last year) they will take a final investment decision (FID) on their LNG liquefaction plants in 2019. Unless demand surprises to the upside, the expected LNG supply deficit in the mid-2020s could easily turn into a glut. In total there is almost 250 million tonnes per annum (mtpa) of capacity that plans to take FID this year – the equivalent of 80% of current global supply. In total there are ~US$180bn of contracts up for grabs – it should be a bumper year for the oil service (E&C) companies. This should be positive for the LNG contractors such as Mcdermott Intl (MDR US), TechnipFMC PLC (FTI FP), Chiyoda Corp (6366 JP) and Jgc Corp (1963 JP) .
Exxon Q4’18 conference call, “While we see a lot of high growth opportunities in LNG, capacity will come on in big chunks. It won’t be necessarily coordinated, so we’ll see, I suspect, periods of oversupply.”
4. U.S. Tech Stocks Are Leading Market Higher.
The S&P 500 remains just short of formidable resistance at its 200-day MA. Yet, there are signs of continued breadth improvement. Technology in particular continues to top our Sector RSR rankings, fueled by strengthening price and RS action for semiconductors, semi-suppliers, and numerous Software groups. Last week we upgraded our weighting for Technology and its strength continues to broaden out. In this week’s report we highlight a number of actionable Technology stocks across our various Groups.
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