SET index to pass 1,600 points this year, UOB unit predicts

Siripun Sutharoj, UOB Asset Management’s new chief investment officer, said yesterday that the SET Index should end the year at about 1,630-1,650, since the capital market has the potential to expand by 50 points by year-end thanks to the economic recovery. 

The clarity of public investment, return of domestic consumption and firming of political stability should boost private investment and earnings. That would set the scene for the Stock Exchange of Thailand to hit 1,700 by next year. 

According to the Bloomberg and SET websites, the index has recently been on an uptrend, from 1,565.41 on September 16 to 1,590.13 on September 23, with market capitalisation of Bt14.42 trillion and a price-to-earnings ratio (P/E) of 18.4 times. 

The index in the past three months has climbed by 8.3 per cent, which contributed to year-to-date growth of 22.4 per cent.

UOB Asset forecasts a P/E ratio of 14.5 times next year. 

“At the moment the index has risen to nearly 1,600 points and it is hard to see a dramatic change in the short term,” she said. “But we believe that an increase of 50 points is possible, while next year earnings growth of 10 per cent is also possible, and the index should rise alongside the increase in earnings growth.” 

With a positive outlook on Thai stocks, UOB Asset Management suggests investors spread their risks by investing in stocks in developed countries such as Japan. That country’s stock prices have the potential to increase on the continuing recovery of its economy, the high return on investment and the lower P/E of Japan’s small and medium-sized enterprises. The ratio is currently at 16 times, lower than the 17.5 of the Nikkei, which used to be as high as 37.

The Thai assets that are suitable for investment at the moment are those related to domestic consumption, thanks to the improvements in consumer confidence. Stocks related to the tourism industry, commercial banking and construction are expected to yield a high return on investment.

Vana Bulbon, UOB Asset Management’s chief executive officer, said United Overseas Bank in Singapore still overweighed Thai stocks compared with other exchanges in Asean. UOB takes into account moves towards political stability and the increase in clarity of how the country will go forward, which presents an upside for the capital market. Meanwhile martial law, which is still in effect, does not dampen investment sentiment. 

Jaruwat Preepreamkul, UOB Asset Management’s head of domestic fixed income, said the Bank of Thailand had the potential to increase the policy interest rate in the third quarter of next year or earlier if gross domestic product improves drastically and on the expectation of a hike in US interest rates in 2015. He recommends investment in bonds maturing in less than three years because they can withstand the potential increase of the Thai interest rate.