SET: positive outlook hinges on world factors

Given the negative factors, however, it is difficult to estimate movements of foreign capital.

Tarisa Chaisuntornyotin, senior vice president of the SET, expects the Thai bourse to yield a 20-per-cent return in 2012. 

The SET Index is forecast to end next year at about 1,250 points. More foreign capital is expected to flow into Asian stock markets including Thailand’s mainly on the possibility of clearer resolutions to the weakening US economy and the European debt problem.

The upward movement could take place in the latter half of 2012 after adverse impacts from this year’s floods ease. 

After many factories and other operations were submerged, a number of listed companies are suffering losses in the final quarter of 2011 that will extend into the first quarter of 2012. Most publicly traded companies anticipate resuming normal operations early in the year. Better earning performance, thus, is expected in the second quarter.

“The January effect is not likely during this period,” Tarisa said, referring to a phenomenon whereby financial-security prices often rise in the first month of a new year. “The stock market is unlikely to perform [well] in the short term, especially the first quarter of 2012. In the long term, the stock market is expected to yield returns.” 

Tientip Subhanij, director at the Capital Market Research Institute, a research unit under the SET, expects the Thai stock market to remain attractive in the eyes of foreign investors because of its low forward price to earnings (P/E) ratio compared with that of the US stock market. More important, the Thai bourse has higher dividend yield than those of stock markets in the United States and Europe. 

Given these factors combined with the lack of recovery so far in European stock markets, foreign capital is likely to flow back into Thailand, provided stock prices are low.

This month, foreign investors staged a comeback with net buying of Bt9.3 billion. In the first 11 months, they were net sellers of Thai stocks totalling Bt17 billion. 

Such a comeback could indicate more investment in the coming periods.

“The Thai stock market is tied to global economic developments, especially debt problems in the euro-zone countries,” Tientip said. “European investors account for 40 per cent of total foreign holdings in the Thai stock market, followed by Singaporean and US investors. The others are Asian investors.” 

If the European debt crisis does not ease soon, that could be a major factor for the Thai stock market, where European investment is high, she said. 

Next year’s economic recovery will depend largely on how the government restores confidence, she noted. Thailand’s long-term investment and policy continuity are also on watch. However, Thai stocks are fundamentally cheap.

External factors are expected to pressure the SET to move sideways, said Kavee Chukitkasem, assistant managing director at Kasikorn Securities. 

Europe’s debt crisis needs to be monitored closely, he said.

Under the first scenario analysis, if there is a quick fix for the European debt problem, growth in Thailand’s gross domestic product is projected at 4.5 per cent next year and the SET Index is likely to reach 1,200 points, with the lowest point 900. This scenario has a 20-per-cent chance of occurring.

The second scenario has a 40-per-cent probability. There are measures to solve the European debt crisis but only to buy time. This development could prompt investors to shift their investment out of stock markets and invest in bond markets. Thailand’s GDP growth is estimated at 4 per cent and the SET Index is forecast to move in a range of 800-1,150 points. 

 

Final scenario

The final scenario is that Germany and France disagree on a solution to the debt crisis and no measures are introduced. If this takes place, Thailand’s GDP growth is likely to be at 1 per cent and the SET Index could move in a range of 700-1,050 points.

“The first scenario is unlikely. The second has more chance. Thus the SET Index is expected to have less upside next year while the downside is relatively high compared with 2011,” Kavee said.

Domestic political movement has to be on watch despite the likelihood that the Thai economy will be boosted by the government’s stimulus measures. 

If the Constitution is amended to allow amnesty and the House of Representatives is dissolved, these will be risk factors for the Thai stock market, which could react positively in the short term. 

However, if such movements do not occur and the government led by Prime Minister Yingluck Shinawatra implements its polices as planned, the stock market will be neutral.

In early 2012, investors should monitor the domestic political situation, which could pressure stock investment, more closely, according to Asia Plus Securities’ research. Certain events could lead to conflicts, especially among political groups outside Parliament, it noted.

The research expects the policy rate to go down 75 basis points to end the first half of next year at 2.5 per cent, citing stimulus needed for domestic demand after the nation’s worst floods in decades, and threats to global and Thai economic growth from the European debt crisis.