Brokerage view floods to affect GDP and corporate earnings

Over the past two months, the Thai stock market has been on a downward trend, with the Stock Exchange of Thailand Index sliding more than 15 per cent. The situation is similar to that in 1998.
Besides, fears are mounting at the possibility of an emergency decree to tackle the severe floods, which could lead to outflow of foreign capital as some countries are constrained with investment conditions.
The flooding in several areas of the country could have the same impact as a couple of years ago when gross domestic product growth slowed for two consecutive quarters – in the fourth quarter of 2008 and the first quarter of 2009 – according to research by Asia Plus Securities.
In 1998, the SET Index dropped more than 15 per cent as Thailand had been facing fundamental problems, especially trade and current account deficits, pressuring the baht to weaken and, eventually being floated in July 1997 during the Tom Yum Kung crisis, the research said.
This flood would likely have an adverse affect on the economy and the stock market, the research said. The GDP in the fourth quarter could slow down, compared to the previous quarter when the Thai economy had started to recover after Japanese manufacturers resumed normal production following Japan’s tsunami disaster in early March.
The hardest-hit sectors are industrial estates in Ayutthaya and nearby areas, auto-makers and auto-parts firms, insurance companies and commercial banks. Asia Plus analysts are revising down their figures, including earnings growth estimates, on expectation of only this year’s impacts.
Next year, the impact could be less, the research said. The previous conservative estimate does not take into account positive effects from the government’s economic policies. In the worst flooding situation, some benefit or receive less impact.
Kim Eng Securities said that both local and foreign brokerage houses are starting to downgrade Thailand’s GDP growth estimates for 2011 and 2012 due to risks to the economic recovery from the flood crisis. Publicly traded companies’ estimated earnings performances are also lower in these years.
The Thai stock market will face higher risks. If the government declares a state of emergency, that could drive foreign capital out of the country as some foreign funds are prohibited from investing in the stock market when an emergency decree is in place.
DBS Vickers Securities (Thailand) said that flood risks would likely heighten in the next one to two weeks when water is expected to flow down from the North coupled with a likely high tide. Listed companies’ earnings prospects are expected to be downgraded, particularly the electronics parts, automotive and electrical appliances sectors, as some of their plants have been directly or indirectly affected by the floods.