Low bond yields aid equities: Thanachart

It forecasts that the Stock Exchange of Thailand will reach a price-to-equity ratio of 13-14 times and the SET Index hit 1,300-1,400 points if the domestic political situation remains stable and floods do not return. The securities house also cautions that risks to global growth remain.
Trakuljit Chittasaiyaphun, chief investment officer, said stock-market indices worldwide had risen on a shift of capital from bonds into risky assets as bond yields of developed countries are very low, less than 2 per cent on average.
Global stock markets’ average dividend yield is 3 per cent and the current average P/E ratio of 16-18 times is not high, he said.
There is a chance for stock markets to rise further, given yield of less than 2 per cent on 10-year Treasuries, he said. In the past, the P/E ratio was 16-18 times while yield on a 10-year Treasury was 5-6 per cent.
“Risks and problems remain. The US and European problems still need 10-20 years to be resolved. These problems have not been totally solved yet. They have only bought time. It’s also about the Iran situation. Therefore, capital has started flowing into risky assets again,” Trakuljit said.
This round of capital inflow could drive up stock markets further, while some is still left in bond markets for fear of risks to global growth.
“Only some stock markets like China, Thailand and Indonesia have risen significantly,” he said.
Foreign capital continues to flow into the SET partly because of its low prices compared with other regional markets and sound earnings growth. No price bubbles are seen for the Thai bourse, with the SET Index expected to continue rising with some corrections.
Foreign capital mostly poured into Thailand’s big-cap stocks, he said, banking on a stable political situation and no flooding. If either of these hopes does not materialise, foreign investors could lose confidence and may move capital out of Thailand.