China slowdown major factor for stock markets in H2, says SCBAM

Meanwhile, the central bank says the recent lowering of its forecast for Thailand’s economic growth was a reflection of global realities and was not out of line with the rest of the region.

Sornchai Suneta, senior executive vice president and chief investment officer at SCBAM, said the main concern was that China’s gross domestic product this year would grow by less than 7 per cent, “lower than analysts’ expectation of nearly 8 per cent”.

The Chinese government has attempted to control bank lending as a way to stabilise economic growth, and this has prompted the concerns over a slowdown.  

Other concerns over risky assets are based on the strengthening US dollar and rising yields on US Treasuries, Sornchai said. 

When the risk-free US bond yield rises, investors across the world may have to reallocate their funds. 

Previously, emerging markets witnessed sharp drops in stock prices on concern over the tapering of the US monetary stimulus, he said, though this concern would likely ease in the latter half of this year with less stock selling.

In the third quarter, the SET Index is expected to move sideways in a range of 1,400-1,500 points, given the lack of good news and domestic political risks looming in August, he said.

The market is expected to adopt a wait-and-see attitude on Thailand’s public investment projects, the status of which will likely come clearer in the third quarter before likely market improvement in the final quarter of 2013.

SCBAM targets the SET Index at 1,550 points by the end of this year.

“In the third quarter, given Thailand’s likely economic slowdown from lower consumption as a result of rising household debt, banks’ increased control over lending, delayed public projects and likely export slowdown, the Stock Exchange of Thailand may revise down the estimate of listed companies’ 2013 earnings,” Sornchai said.

He expects the Thai stock market has passed its low point with less foreign selling. However, foreign investors may not return to emerging markets during this period as the US and Japanese markets become more attractive.

Meanwhile, Bank of Thailand Governor Prasarn Trairatvorakul said the lowering of this year’s economic-growth forecast to 4.2 per cent from 5.1 per cent was in line with regional economic outlooks, and resulted from the slowdowns being experienced by the Kingdom’s trading partners. 

“The BOT considered the strengths and weaknesses of the Kingdom in formulating the strategies for growth and competitiveness in accordance to the connection between Thailand and neighbouring economies,” he said.

Government spending will help boost business expansion and investment which, in turn, will stimulate domestic economic liquidity, he added.

The situation of capital inflows and outflows conforms with other countries in the region. Sentiment in Asia has improved after the announcement of weaker-than-expected US growth, meaning the Federal Reserve’s quantitative-easing scheme won’t be trimmed in September. Therefore, foreign capital has recently flowed back into Asia including Thailand, which led to minor appreciation of the baht.

Notwithstanding, the BOT has the tools to deal with the changes suitably for the Kingdom’s economy, Prasarn said.

“The central bank has prepared appropriate tools in responding to the situation such as system for flexibility in the currency exchange rate. In the case of high volatility, the bank will intervene.” 

In the current second half of the year, Thailand will continue to face fluctuations in global financial markets as the critical economies are still on the road to recovery.