Thai shares jumped 2.36 per cent yesterday, driven by cheap stocks, high dividend yields and speculation that the central bank will lower its key policy interest rate.

The SET index started with a mild rise and surged to the day's height of 692.89 in the afternoon trading session before weakening slightly to close at 691.28. Turnover was moderate at Bt25.94 billion.

Blue-chip stocks rose across the board. PTT was up 3.16 per cent at Bt210, Siam Commercial Bank rose 4.80 per cent to Bt65.50, Kasikornbank climbed 3.17 per cent to Bt65, Bank of Ayudhya-warrant chalked up a 7.69 per cent climb to Bt7.69, and PTT Exploration and Production (PTTEP) rose 3.13 per cent to Bt99.

Siam City Securities' assistant managing director Sukit Udomsirikul said the buying spree came mainly from foreign investors. After returns from the bond market declined, foreign investors have shifted their money into the equity market, he said. Besides, investors are attracted by dividend yields of listed companies averaging 4 per cent.

However, capital flowing into the stock market is not from fresh funds and the euphoria is expected to be short-lived, Sukit said.

"Comments by the Finance Minister on the possibility of lower interest rates triggered buying in the local bourse. The attractive valuation of Thai stocks compared with regional peers is also drawing foreign investors to build up their portfolios," Dow Jones Newswires quoted a Kiatnakin Securities analyst as saying.

The latest analysts' poll conducted by the Securities Analysts' Association has brought the SET index target for this year down from 799 points in an October survey to 729, the association's secretary-general Sombat Narawutthichai said yesterday. The Bank of Thailand's capital control measures, continuing violence in the deep South and uncertainties over the political situation and PTT's future, following a consumer group's legal action to delist the national oil and gas stock from the bourse, are major concerns among analysts, he said.

Most analysts agreed that the SET will feel the pinch if the interim government's tenure is extended by six months to one year, instead of ending as scheduled in October.

The new analysts' consensus has also revised downward expected growth in the earnings per share (EPS) of listed companies, from 4.4 per cent to 2.6 per cent in 2007, due to declining consumer confidence.

EPS growth among listed companies in the energy sector is expected to plummet into negative territory by 1.6 per cent, while that of the property sector will outperform at 18.7 per cent, based on an expected fall in interest rates.

The trend towards lower interest rates, falling oil prices and the Cabinet's approval in principal of Bangkok's five rapid transit rail routes have been major factors boosting the Thai stock market.

The analysts urged the government to use circumspection when issuing policy measures, particularly those related to monetary and fiscal matters, because they have an impact on investment and investors' confidence.

They said the government should accelerate the writing of a new constitution to enable a general election to be held as scheduled.

Despite the outcome of the analysts' poll, Thanachart Securities is poised to raise its SET index target from 730 points this year on anticipation of a reduction in the policy interest rate of at least 100 basis points and further relaxation of the central bank's harsh 30-per cent reserve requirement.

"Amid a spate of worse situations, we estimate the stock market at 730 points," the research house's head, Pichai Lertsupongkit, said. "It is possible that we will raise the target after risks decline."

The broker estimated that the Thai stock market's price to equity ratio this year will stand at nine times, well below that of neighbouring bourses.

Siriporn Chanjindamanee

The Nation