Although all the economic data and earnings growth of listed companies have reflected a slowdown, Thailand's economic fundamentals are strong enough to withstand any political fallout.
We believe that if there is no more political violence, the economy can recover soon, so this is a good time to pocket Thai equities.
Recently, the Bank of Thailand downgraded its GDP growth forecast to 2.7 per cent this year and 4.8 per cent next year, mainly because of the political uncertainty. So uncertainty is still the key uncontrollable factor.
Whatever the outcome of the political confrontation, it will always present an opportunity to go long on stocks. For instance, if there is a new election and a government is formed to reform the country and implement policies, the economy as well as the equity market will move forward.
On the other hand, if the political issue ends badly, the SET Index will drop, which presents a great opportunity to invest in stocks at low prices. However, the SET will take a long time to recover.
External factors are another support for the SET because of the recovery of major economies.
US employment and consumer confidence are at healthy levels.
The European economy is likely to grow, especially since the purchasing managers index has improved steadily to a level above 50, which reflects economic growth.
Japan’s easing of its monetary policy can push inflation up to 1 per cent. The hike in VAT from 5 per cent to 8 per cent and the yen’s fluctuation will hurt Japan’s economy this quarter. However, the Bank of Japan may apply more monetary easing to prop up the economy.
China’s economy won’t face a hard landing even though the latest data show that that nation’s first-quarter GDP growth rate was the lowest since the third quarter of 2012.
However, the Chinese government is expected to implement monetary or fiscal policies to stimulate its economy.
The global economic upturn would cause worldwide interest rates to rise. This could wield a negative impact on the stock market in the short term. And if the global economy heads for full recovery, the equity market will rebound as well.
Although the US, European and Japanese economic recoveries may pull back funds, valuation is an important factor for investment decision-making. If the valuations of those countries are attractively high, funds will flow to countries with economic uptrends instead. Thailand is one such country.
If investors are interested in Thai equities, we recommend holding for one to two years companies that will benefit from the global recovery, such as energy and petrochemical players. Alternatively, dip into the banking, telecommunications and property sectors when local political tensions abate and the economy can move forward.
We also recommend positions in mutual funds whose policies are to invest in Thai equities and whose management style is active through cash-equity switching, sector rotation and stock selection.
Besides, a mutual fund man-ager will select a strategy to match the highly volatile market situa-tion. A good fund manager will always invest in stocks with strong fundamentals and high potential growth.
_ Asset Plus Fund Management contributed this article.