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Published on November 7, 2007

"The addition of Thai Oil and Bank of Ayudhya to the MSCI index helped erase early losses, inspiring players to collect some sound fundamental stocks," a strategist at Asia Plus Securities was quoted as saying by Dow Jones Newswires.

The SET Index took a bouncy ride before the announcement that Bank of Ayudhya and Thai Oil would replaced Charoen Pokphand Foods and Land and Houses in the MSCI Asia ex-Japan helped the market turn around to close at the day's high of 886.31.

The new MSCI index goes into effect on November 30.

Turnover was thin at Bt17.97 billion. Foreign investors were net sellers of Bt3.93 billion in stocks, compared with Bt5.23 billion in net sales on Monday.

Thai Oil rose 1.65 per cent to Bt92.50, while Bank of Ayudhya gained almost one per cent to Bt28.25.

Despite the stock market's wobble over the past few days, V Anantha-Nageswaran, managing director and head of investment research in Asia-Pacific and the Middle East for Julius Baer Bank (Singapore), was still bullish in its outlook for next year.

"If Thailand's general election is smoothly conducted, it will increase investor confidence. And it will lead to foreign capital inflows and likely boost the SET Index to 1,200-1,300 points next year," he said.

Compared to other markets, the local bourse is still attractive, supported by strong economic fundamentals and a low price-to-earnings (P/E) ratio, while the P/E of other markets had become overvalued, he added.

After the new government is formed, fiscal spending would be the key factor for the economy's prospects next year. He sees gross domestic product (GDP) up by 5-6 per cent in 2008, which is quite optimistic compared to the Bank of Thailand's forecast of 4.5-6 per cent and the World Bank's prediction of 4.6 per cent.

"Government spending will be the core driver of economic growth next year, particularly in construction and infrastructure projects. But exports are expected to slow down due to the negative outlook for the global economy," he said.

World economic growth could lose steam next year assuming bad prospects for the US economy, which will continue to be hurt by the household sector slowdown and higher crude oil prices.

Although oil prices will also act as a drag on the Thai economy next year, GDP growth will mainly be supported by internal factors, said Anantha-Nageswaran. The higher oil prices will be a key force pressuring the baht down, particularly in the second half of the year.

Somruedi Banchongduang, The Nation