Aberdeen Asset Management believes listed companies' profits will improve along with the economy in the second half of the year on increased political stability, investment confidence, and domestic consumption.
However, there remain external and internal factors, such as uncertainty surrounding the junta’s economic policies and geopolitical risks, which could have adverse effects on the stock market.
Adithep Vanabriksha, Aberdeen’s chief investment officer, said the short-term economic policies of the military’s ruling National Council for Peace and Order were positive factors, while the increased political stability should also improve the economy during the rest of the year. However, the long-term effectiveness of the NCPO’s policies remains to be seen.
“Company executives have said that everything is improving from the increased domestic consumption – people are spending more. Property sales have increased in past months and sales of cars also have the potential to improve since the effects of the first-car policy are dissipating and the economy is getting better,” he said.
Regarding the NCPO’s policies, Adithep said there were four main factors that had the potential to affect the economy and the capital market and which investors had to keep an eye on. These are the introduction of infrastructure funds, the management of energy subsidies, tax reforms, and issues concerning agricultural prices, especially rice and rubber.
“These four issues are important, will take time, and they are not easy to solve, while the issues that are easy to solve have mostly been done,” he said.
As for external pressure on the capital markets, Adithep said investors should beware of the expected increase of the United States’ policy interest rate, which Aberdeen believes will occur in the second or third quarter of next year. The rate hike should be minimal, around 0.25 percentage point, but geopolitical risks could change the situation and force the US to increase the rate sooner and more drastically than previously expected.
But he said an early rise in the US rate was unlikely if that country was still not confident of its economic recovery.
Adithep believes that the profits of companies listed on the Stock Exchange of Thailand in the fourth quarter will be better than in the same period last year, and much better than in the first half of this year, which was negative. Aberdeen projects flat earnings growth for full-year 2014 and 7-10 per cent in 2015.
Adithep said the capital market had already grown by 20 per cent since the beginning of the year and the price-to-earnings ratio was getting high, expected to be around 14 times by the end of the year.
But there are many stocks that are still not expensive, such as those in property and energy, which means that investors on the SET should be selective.