This week, we expect the SET Index to be range-bound at 1,580-1,610 pending the Constitutional Court decision on the case involving the Future Forward Party. Although the decision is unlikely to trigger major political chaos, there is no near-term catalyst to cheer about in the market. And with Chinese New Year holidays approaching, liquidity in the market could be thin. Our top picks this week include AP, ERW, KTB, SCB and SPALI.

Relief induced a rebound

The SET Index rose 1.1% to 1,600 last week while our portfolio returned 3.7%. The market was range-bound early last week before investors turned risk-on after the US and China signed phase one trade agreement on Jan 15. Top performers were Construction Service, F&B and Utility sectors, while Tourism, Petrochemical and Construction Material were among those which underperformed. Construction Services gained after the government passed the budget bill, especially after Deputy PM Somkid said he would accelerate disbursements of up to Bt1tn by 2Q20. F&B benefitted from higher food price due to ASF and Chinese New Year effects. Meanwhile, there were speculation Utility counters would benefit from new investment projects and possibly an increase in Ft along with rising fuel prices.

We do not expect policy action at upcoming central bank meetings

It will be a busy week ahead. The BOJ meeting is scheduled for Tuesday morning while later on the same day, Thailand’s Constitutional Court will decide on allegations the Future Forward Party had borrowed Bt191m from illegitimate sources. The ECB will announce its rate decision on Thursday and preliminary PMI data is due out Friday. The BOJ is expected to leave key rate unchanged at negative 0.1% as inflation has picked up and recent fiscal stimulus measures are expected to stimulate growth. The Consumer Price Index in Japan had inched up from a low of +0.2% yoy last October to +0.5% yoy in November. Similarly, we do not expect policy action at Lagarde’s second policy meeting. The ECB is expected to keep policy rates unchanged at -0.5% for deposit rate and 0% for main refinancing rate. Based on the latest ECB press conference, Lagarde appears to be not only less dovish than Draghi but is concerned monetary policy has been inefficient in transmitting down to the economic system, and that is preventing the ECB from taking an additional step towards easing monetary policy.

Global growth is creeping up but remains fragile

Preliminary reports of manufacturing sector surveys in Japan, Europe and the US are due to be released Friday. The manufacturing sector is expected to remain a major drag while consumer spending or services sector should continue to shore up the economy. Flash Manufacturing PMI data for Japan and Europe are expected to inch up but remain below 50 (contraction zone). It is expected to rise  to 48.9 in January from 48.4 in December in Japan, and data for Eurozone is expected to climb to 46.9 from 46.3. In contrast, the market forecasts US manufacturing sector would continue to expand with manufacturing data inching up from 52.4 to 52.6. The improving global manufacturing sector suggests global growth is gradually recovering but the overall economy remains fragile.