UBS remains cautiously optimistic on Thailand

UBS has maintained its neutral view on the Thai stock market despite threats to growth from the slowing global economy and the growing uncertainty over the Thai government's policy implementation.

"I see Thailand as quite positive as a key member in Asean and geographically positioned right in the heart of Asean," Ian Gisbourne, executive director for UBS Investment Research and head of research at UBS Securities (Thailand), said last week.

The Asean Economic Community could help the Southeast Asian countries, including Thailand, to outperform North Asia for a few years.

Besides regional integration, Thailand's pro-growth government policies and close-to-peak interest rates could be positive for its share prices.

On the back of strong banking results in the first half of this year, UBS Securities has revised up this year's earnings growth forecast for the Thai stock market to 28 per cent from 25 per cent.

For the market as a whole, the Stock Exchange of Thailand Index at 1,146 points is an achievable target for this year. "People should not panic on what was happening last month," he said.

Standard & Poor's downgraded the US credit rating to "AA+" from "AAA" on August 5 and the European sovereign debt problems showed signs of spreading.

"The underlying drivers for growth and Thai share prices haven't actually changed that much. You've got very positive regional structure dynamics - AEC. Both the previous and current governments are broadly pro-growth and try to stimulate growth. That hasn't changed.

"Political risk has increased and fallen again. It's not significantly different from eight months ago. The biggest difference now than eight months ago is people's fear about growth outlook in Europe and America," he said.

In six to 12 months, if Europe, the United States and China have problems, it might be difficult for Thailand's exports and stock market to perform well.

These three regions are obviously driving global growth, which is now showing signs of weakening.

"However, we [the world] will not be going into another similar recession in 2008-9. It's more like a sharp slowdown, but not recession," he said.

Even with greater intra-region trade, investment and services in Asia, the impact from the European and US slowdowns cannot be completely offset.

"The impact could lessen in degree. We are not completely decoupled but we are more decoupled now than 10 years ago," he said.

UBS Securities softened its GDP forecast for Thailand to 3.3 per cent this year and 3.2 per cent next year. The economy here will continue weakening in the fourth quarter of this year, bottom out in late first quarter of next year and start to improve from the second quarter.

"The Thai economy is still decelerating. It will have an impact on exports and commodity prices through earnings," he said.

The securities house projects earnings growth to slow to 14 per cent next year. This estimate excludes an adjustment from the impacts of government's policies.

There is still political risk for policy implementation in Thailand. Given a limitation on the fiscal stance, how will the government deliver all the promises they made would be a challenge.

Because other markets especially in North Asia have fallen sharply, nearly 20 per cent this year, Thailand does not look cheap, relative to the rest of Asia. Despite this, some energy and petrochemical stocks in Thailand are quite interesting.

"Personally, I would buy cyclical sectors, banks, some cheap property stocks and some stocks in petrochemical, and oil and gas [sectors]," he said.