Siam City Securities said in a research note that the US's 10-year bond yield is expected to be raised from the current 5 per cent to 6 per cent, which is indicative of the switching of money from bonds to other assets.

Interest rates in both Japan and Europe are tending to increase, while that of the United States is on the decline, the research said.

In addition, the yuan is gradually appreciating against the US dollar.

According to a Boston Group research on the emerging-market portfolio funds, the capital

flow into emerging markets in the first quarter amounted to US$21 billion (Bt791 billion), compared to $20 billion for the whole of 2005.

The broker estimates that the Thai stock market in the second quarter is likely to increase

with the anticipation of extended capital flow into Asian countries.

But stock market volatility would be relatively high if the SET Index exceeded 780 points, it said. Inflation, which might increase at a higher-than-expected rate, and the slowdown in corporate earnings would be behind such high fluctuation.

However, the rise in liquidity would overshadow the slowdown in earnings growth, the broker added.

It estimates that corporate earnings will grow below 5 per cent, while inflation in the second quarter will shoot up to 5.8 per cent - from a range of 4.8 per cent to 5 per cent - due to skyrocketing fuel prices.

Capital Nomura Securities (CNS) echoed Siam City Securities' views by saying that the SET Index this month was likely to hover around 800-824 points, mainly due to capital inflows.

However, foreign fund managers have increased their investments in Asian countries, including Thailand, the broker said.

"We expect that fund flow will increase this month due to cheap share prices with a price/equity ratio at 10 times, compared to other markets in Asia-Pacific at 13-15 times," it said.

As to the Bank of Thailand announcement, a whopping $11.5 billion in capital flooded into Thailand in the first four months of the year. Of this amount, $3.3 billion was direct investment, with the remainder in bonds and stocks. Such a massive fund flow has strengthened the baht by 8 per cent so far this year and made the unit the second most appreciated currency in the region, after the Indonesian rupiah.

But high oil prices are a negative factor that might lead the global economy into recession, CNS said.

Based on its assumption that the Dubai crude oil price is raised by $10 per barrel, Thai economic growth could drop from 4.7 per cent to 4.1 per cent and inflation would jump from 4.1 per cent to 4.8 per cent.

The effect of rising fuel prices on the Thai stock market is limited, the broker said, as energy companies - the main beneficiaries from high oil prices - would contribute 36 per cent of the listed companies' estimated net profit this year.

Banks, which face lower pressure on loan-loss provisioning this year, will generate 21 per cent, added CNS.

Industries hurt by the oil price - airlines, electronics parts, and agricultural businesses - are expected to contribute only 7 per cent, 2 per cent and 1 per cent, respectively.

Ayudhya Securities said that selling pressure by foreign investors would be seen if crude oil prices dive to below $70 per barrel.

The broker predicts that oil prices will touch $80 per barrel this year.

Siriporn Chanjindamanee

The Nation