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Thailand SET Dragged Down By The Telecom Sector As NBTC 900MHZ Auction Saga Continues

|Includes: iShares MSCI Thailand Capped ETF (THD)

by Ed Wijaranakula, NMS Investment Research

Related Ticker: iShares MSCI Thailand Capped ETF (NYSEARCA:THD)

The Thailand SET jumped 0.71% to close at 1,306.20 on Friday, ahead of the U.S. non-farm payrolls report. The U.S. Department of Labor said on Friday that the headline January non-farm payrolls number was 151,000, missing the economists' forecast of 191,000. The unemployment rate dropped from 5.0% to 4.9%, as the civilian labor force increased from 157.83 million to 158.34 million, or an increase of 502,000. Average hourly wages increased to a 2.5% annual growth rate, due to a "tightening labor market". It may be true, but some of the bump came from recent hikes in the minimum wage in many states and localities, affecting about 4.6 million workers.

The U.S. stock market sold off after the release of the non-farm payrolls report as investors couldn't decide whether it was a good report, or a bad report. Most investors may not realize that the unemployment rate is calculated using the household survey data, while the non-farm payrolls number is derived from the so-called establishment survey. The Department of Labor deploys both the establishment survey and the household survey to collect their data. It is anyone's guess how the Asian market, including the Thailand SET, will respond to the U.S. non-farm payrolls report when they open on Monday.

The 900 MHZ auction saga in Thailand continued this week after the Bangkok Post reported last Friday that the National Broadcasting and Telecommunications Commission (NBTC) was quietly drawing up plans to call for a new round of auctions for the 900 MHZ spectrum, if bid winner Jasmine International (SET:JAS) fails to secure the massive funding it needs.

Earlier in the week, the NBTC denied the Bangkok Post report but announced on Thursday that a re-auction could be held by June if the two previous bid winners, Jasmine International and True Corporation (NASDAQ:TRUE), fail to make their first installment payment by March 21. The auction will begin where they left off, at a starting bidding price of 75.7 billion baht, said the NBTC. NBTC secretary-general Takorn Tantasith also said if the re-auction failed to attract any bidders, the NBTC would suspend the auction for one year, according to the Bangkok Post.

Investors dumped telecom shares on concerns that the companies could have overpaid for the licenses or might not participate in the bidding process as Advanced Info Service (SET:ADVANC), Thailand's largest mobile phone operator, put it in December after walking away from the auction, "the price for a license had stretched beyond fair value".

For the week, shares of Advanced Info Service, were down 2.07%, followed by shares of Jasmine International and Total Access Communication (SET:DTAC), which dropped 7.05% and 7.46%, respectively. Shares of True Corporation fared worse and closed down 9.15% for the week.

As expected on Wednesday, the Bank of Thailand (BoT) kept its key interest rate unchanged at 1.5% for the sixth straight meeting. Last month, BoT Governor Veerathai Santiprabhob told Reuters in an interview that the bank doesn't see any need to change the current monetary policy framework that it has.

Separately, the University of the Thai Chamber of Commerce (UTCC) said its Thai consumer sentiment index weakened in January, coming in at 75.5 compared with 78.1 in December, citing concerns over the global economy and geopolitics. Local Thai consumers are also concerned about poor export prospects and low oil and farm product prices, said the UTCC's survey.

The price of WTI crude oil tumbled 8.12% for the week, to close at $31.00 a barrel on Friday. Investors shrugged off the weakness in the crude oil prices and bought shares in energy sector including PTT (SET:PTT) and PTT Exploration and Production (SET:PTTEP), both shares were up 2.54% and 4.39%, respectively. According to the Bangkok Post, in the first quarter, PTT may revise its five-year operations and production capital expenditure budget downward again, if oil prices remain below $40 a barrel.

Despite a selloff in the telecom sector, the SET still managed to inch up 0.41% for the week to close at 1,306.29 on Friday. The USD/THB exchange rate was quoted at 35.585 baht per dollar on Friday, down 0.29% for the week, while the CNY/THB slid another 0.22% to close at 5.414 baht per yuan. The Thai 10-year bonds were yielding at 2.28% at the close on Friday, down 2.56% from the previous week.

The yield spread between the Thailand 10-year bond and U.S. 10-year Treasury Note, yielding at 1.843% on Friday, narrowed to 0.437 percentage points. Foreign investors' net sells have been increasing slightly to 8.782 billion baht since the beginning of the year, according to the SET data.

Thailand SET Technical Chart

Technically, the SET continued its uptrend after pulling back slightly at the 50-day moving average (green-line) at 1,291.78, and the 38.2% Fibonacci retracement level at 1,301.53. It is bullish, as the SET was able to close above the 50-day moving average. The next head resistances are at 1,313.86, or the trendline resistance, and at 1,326.41, or the 50% Fibonacci retracement level. As long as the index stays within the T1 and T2 trendlines, there should not be any red flags.

One may want to watch the Thai baht, as the USD/THB could be heading to retest the October 15 low at 35.11 baht per dollar, meaning the SET should be at the 1,430 level.

Disclosure: I am/we are long ADVANC.