Middle East war threatens to pummel Thai stocks

The intensifying conflict between Israel and Iran is raising concerns over prolonged instability in the Middle East, with Daol Securities (Thailand) warning of ripple effects across global stock markets.

The conflict, which has escalated from tit-for-tat attacks since Friday, could have both positive and negative impacts on Thai equities.

According to analysts, the primary aim of Israel's offensive may be to dismantle Iran's nuclear facilities or even instigate regime change. Iran has signalled a willingness to de-escalate if Israel halts its attacks, while Israel has faced little international pressure to cease operations.

Because of conflicts in the Middle East, Daol sees a high chance that Brent crude oil prices could climb to around US$80 per barrel or higher, though the base-case assumption remains at $70 for Dubai crude. Rising oil prices are expected to benefit upstream energy producers and refineries.

"The Iran-Israel conflict, while alarming from a humanitarian and geopolitical standpoint, is reshaping global energy markets," Daol said in a research note.

Thai investors are advised to position selectively, favouring energy and refinery stocks while being cautious with sectors vulnerable to cost inflation and external demand shocks, it added.

Key beneficiaries in the Thai stock market with a recommended "buy" include PTT Exploration and Production (PTTEP), Thai Oil (TOP), Star Petroleum Refining (SPRC) and Bangchak Corporation (BCP).

These companies are likely to benefit from higher average selling prices and potential gains from inventory as well as improved spreads, Daol noted.

In contrast, several sectors are likely to experience pressure from the war and rising energy prices, including power producers, as rising natural gas prices could squeeze margins for small power producers, particularly as electricity tariffs (Ft) remain capped by government policy. The most vulnerable stocks are Global Power Synergy (GPSC), B.Grimm Power (BGRIM), and Gulf Energy Development (GULF).

The petrochemical business is likely to be affected by higher feedstock costs while weak global demand could negatively affect margins. The key impacted stocks are Siam Cement (SCC), PTT Global Chemical (PTTGC), and Indorama Ventures (IVL).

Oil retailers are under pressure from compressed marketing margins, even though fuel fund reserves could help to cushion the blow. Daol expects sentiment to remain negative for PTT Oil and Retail Business (OR) and PTG Energy (PTG).

Meanwhile, the tourism sector could be hurt by a decline in visitors from the Middle East, who made up 1.4% of arrivals in the first five months. Stocks under pressure include Erawan Group (ERW) and Central Plaza Hotel (CENTEL).

As fuel costs account for 30-40% of airline expenses, carriers like Asia Aviation (AAV) and Bangkok Airways (BA) could feel the pinch of rising oil prices

Besides, exporters with significant exposure to the Middle East may face higher shipping costs and slower orders, notably Asian Alliance International (AAI), Thai Union Group (TU), i-Tail Corporation (ITC), and GFPT.

Provided by SyndiGate Media Inc. ( Syndigate.info ).