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Published on March 11, 2008

As other Asian economies raced past their pre-1997 financial crisis stock exchange peaks, Thailand is still just a few notches up at half of its 1400-point high in the mid-90s, said Frederic Neumann, HSBC's economist for Asia-Pacific.

This means there is plenty of room in the upside for equity to climb, as stocks are still relatively cheap in terms of price to earnings, he added.

 But two decisive factors - the current political situation in Thailand and global risk aversion - will limit the growth of the market, said Neumann. If the political situation turns worse, this might further derail the already wobbly trust within the international investment community. The question is whether the new government can survive its first year.

Despite fears of currency speculation once the 30-per-cent reserve was lifted, Neumann said global risk aversion and the credit crunch as a result of the US sub-prime shenanigans would actually dampen the baht from appreciating. More capital inflows would actually help both the public and private sectors in drumming up much-needed funding, especially to match funds required for the government's stimulus package.

The increased demand for funding, which would lead to demand for the baht, could put too much pressure on the baht and force the central bank to lower interest rates. But Neumann believes there is no need for the Bank of Thailand to cut rates soon as the baht is unlikely to appreciate any time soon.

What consumers and investors should fear, though, is the rising inflation rate. Unlike oil prices, when food prices rise, they are unlikely to come down soon, said Neumann. Despite government control over more than 30 per cent of the food products in the CPI basket of goods, he is sceptical that it can rein in inflation for a longer period.

So far, to curb inflation, the BOT has improved its ability to absorb excess liquidity in the financial markets with its notes and very short-term bonds.

To date, there is no reason to loosen the monetary policy when GDP growth, according to HSBC, will be around 5 per cent this year.

Earlier, UBS Securities (Thailand) forecast that the SET Index would hover at 1,083 points a year from now, assuming that an increase in the country's economic growth from 4-5 per cent to 6-7 per cent would add 20.4 per cent to the value of the market.

Former deputy prime minister and finance minister MR Pridiyathorn Devakula believes the baht will not grow stronger in the short term as it has already appreciated 5-6 per cent ahead other regional currencies.

Moreover, exporters had earlier sold out their export income and had limited income left while importers have started to buy the dollar.

The Thai stock market yesterday plummeted 1.82 per cent to its one-month lowest level at 806.65 mainly on an across-the-board sell-off by foreign investors triggered by the steep fall in Wall Street and regional stock markets.

Concerns about whether the Chart Thai Party and Matchima Party will be disbanded also dampened the market.

Foreign investors sold Thai shares with a net position of Bt1.69 billion yesterday.

Ki Nan Sui

The Nation