SET to benefit from 'Great Rotation' to equities, seminar told
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In what has been termed "the Great Rotation", a major shift by investors from bonds to equities is predicted for emerging markets including Thailand in the next six months. This is expected to last for many years, now that clear signs have emerged that
Since the sub-prime crisis in 2008, the US Federal Reserve has injected money into the financial system through several rounds of QE. Speaking at the “Tisco Wealth-Krungthep Turakij Investment Forum” yesterday, Paiboon Nalinthrangkurn, chief executive officer at Tisco Securities, noted that this heavy fund flow poured into bond markets rather than equities markets, as the return on the former has been more attractive.
Employment numbers and property prices in the US are improving, so the Fed no longer needs to resort to QE, Paiboon said, adding that the market expected QE would end this year, and that massive fund flows would start to move from bonds to equities.
The Fed is currently injecting US$85 billion (about Bt2.5 trillion) per month into the financial system.
Paiboon said the end of QE would have an impact on equities’ liquidity, as the market will initially see capital outflows from the equities and bond markets.
Yet this is an opportunity for investors to buy equities, he said, because once the market adjusts to the end of QE, “the Great Rotation” will see another massive fund flow into the stock market.
Paiboon, who is also chairman of the Federation of Thai Capital Market Organisations, said the Stock Exchange of Thailand had become a “bull market” on expectations of this predicted fund flow. He said the price-to-earnings ratio (P/E) of Thai stocks was not too high, despite the SET Index having surged above 1,500 points.
In another indicator of the bright outlook for the Thai stock market, he pointed out that Thai listed companies’ earnings growth had increased. Between 2009 and last year, the SET Index rose by 100 per cent. Listed companies’ earnings during the period grew by the same amount. P/E of listed companies is not too high for investment, Paiboon added.
The SET should remain a bull market for four or five years if listed companies’ annual earnings grow by 12-15 per cent, the analyst said.
Whether or not a strong P/E is justified depends on the earnings potential of listed companies, he said.
“We believe the earnings of listed companies [will continue to grow] based on the prospects of private and government investment in the Bt2-trillion [infrastructure] projects.”
However, investors should be aware that analysts had yet to give much attention to the prospects of smaller-cap stocks, he warned.
The SET Index has a good chance to beat its 1,789-point target for this year, he said.
