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SET Index has highest price to earnings ratio in Asia, faces more risks

Jun 09. 2020
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By The Nation

The Stock Exchange of Thailand (SET) Index has had a price to earnings ratio of 21.8 times, which is the highest in Asia, Nuttachart Mekmasin, a research analyst at Trinity Securities, said on Monday (June 8).

He said in comparison to the past five years, SET’s price to earnings ratio was higher than the standard deviation of 5.5 times, which is partly due to the forecast that the stock market’s profits this year will drop by up to 34.8 per cent.

“The Thai stock market’s valuation is currently too high,” he said, adding that it was driven by liquidity, especially from quasi-money that has risen sharply over the past two months, causing individual investors to return.

“SET also gained because foreign investors returned to the market,” he added. “We advise investors to maintain confidence in the bond market as it causes cash to flow into the stock market and pushes up bond dividends.”

Meanwhile, a stock analyst at UOB Kay Hian Securities (Thailand) said SET gained from energy stocks in the morning session as the market expected the energy and petrochemical companies’ second-quarter performance to improve.

“However, it was short-term speculation because oil refineries’ profit will drop drastically due to rising refining cost,” he said

“Petrochemical companies will, however, benefit from the drop in the cost of petrol, while firms that run petrol stations will benefit from the drop in oil prices due to oversupply.”

A stock analyst at Asia Plus Securities said over the past week, the SET Index rose sharply by 6.91 per cent, while transactions over the previous two days have risen over Bt100 billion per day.

“These factors have encouraged investors to return to the market as it proved that the index is ready to take risks,” the analyst said. “However, the faster the SET Index rises, the more you have to focus on increased risks.”

After falling to 969 points, its lowest ever, on March 13, the index rose by about 28 per cent, the highest when compared to other indices in Asia.

This continuous recovery has helped the index, which contracted 30 per cent year on year, to rise to contracted 9 per cent year on year.

On Monday, the index rose to its highest at 1,454 points before closing at 1,438.66, up 2.96 points or 0.21 per cent.

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