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Published on March 27, 2008

The government's economic-stimulus packages, including tax cuts, a shot in the arm for the small, medium and large (SML) enterprise-funding programme and other measures still to come, are expected to give a big boost to banking, property and consumer-related stocks.

The Bt18-billion SML fund approved by the Cabinet this week adds to the Bt42-billion tax-cut programme announced earlier. The SML fund will be injected into rural areas by the Bank for Agriculture and Agricultural Cooperatives (BAAC) and the Government Savings Bank (GSB).

As well as lifting rural incomes, the stimulus measures announced so far are expected to bring benefits to the property, banking, hire-purchase, telecom and consumer segments of the economy.

Seamico Securities said in a paper released yesterday that it was recommending stocks in the property, banking and retail sectors that would benefit from both the stimulus packages and the economic recovery. Investors should put their money into those stocks with prices that are still cheap compared with that of their peers, including Kasikornbank (KBank), Bank of Ayudhya (BAY), LPN Development, Quality Houses and Supalai, the broker said.

Seamico's target prices for BAY and KBank shares are Bt29 and Bt107, respectively, while that for LPN, Quality Houses and Supalai are Bt9.30, Bt3 and Bt4.90, respectively.

Citibank said yesterday in its Thailand Investment Daily it expected fiscal spending and the Bt42-billion tax-cut package to help attain growth of 5.4 per cent this year, up from 4.8 per cent last year.

"Private consumption of non-durable goods will be the key beneficiary of the tax cuts, and this will likely boost domestic demand. Increased consumption will prime import demand," Citibank said.

"However, export deterioration is likely to cause net exports to collapse in 2008, from 21.6-per-cent growth last year."

Finance Minister Surapong Suebwonglee yesterday said the government would soon introduce a second package to stimulate the property sector in addition to the tax-cut package. There will be two new measures intended to give a long-term boost to the property market in terms of strategy and business development.

Surapong said he planned to boost property output to represent 6.7-7 per cent of gross domestic product (GDP), up from 6.2-6.3 per cent last year.

The Government Housing Bank and the GSB have also launched a Bt15-billion programme to help first-time low-income home-buyers.

Citibank warned in its paper it saw a risk of the government overpromising and underdelivering on its tax-cut plan.

The government may request a supplementary budget to jump-start the implementation of more rapid-transit railway lines.

Given the tax-cut package plus a fiscal-2008 budget with expenditures rising 20 per cent, Citibank expects a deficit of 2 per cent of GDP. Income-multiplier effects from the tax cut will ease the incremental tax shortfall to Bt27 billion instead of Bt42 billion, it said.

The government has also announced a farmer debt moratorium. The BAAC will provide a three-year debt moratorium and Bt13 billion worth of new soft credits.

Citibank believes the Bank of Thailand will cut its policy interest rate 50 basis points next month, from its current level of 3.25 per cent, assuming that core inflation stabilises. Such a cut would narrow the 125-basis-point rate differential created by the US Federal Reserve easing the US rate.

The Nation