Outflow of foreign capital has pressured the Thai stock market for a long time. From early 2018 to now, foreign investors were net accumulated sellers of Thai stocks worth more than Bt130 billion. However, local purchase of Thai stocks, particularly from local institutional investors, has remained strong. Meanwhile, compared to early 2018, the SET Index has been positive so far.
We expect foreign capital outflow to almost end its journey from the following three factors.
First, differential between 10-year US bond yield has gradually moved into a balance after the US bond yield has remained higher than the Thai bond yield since January 9, with a differential higher than 30 basis points. Lately the differential has been only 4-5 basis points. In the meantime, the baht has depreciated from US$31 to above $32. Given the mechanism has started to return to a balance, capital outflow is expected to be lower.
Second, in a case for readjusting the weight of the MSCI, in the latest round, A-Share of China and South Korea have been increased in weight significantly. To the Thai stock market, from the date MSCI announced stock entries and exits on May 15 to May 31 (12 trading days), foreign investors net sold Thai stocks totalling Bt384 billion in the belief that such portfolio adjustment would likely end from May 31.
Third, previous uncertainties over the schedule for the general election are ebbing. However, the bills on election to the House of Representatives and selection of senators have not been against the Constitution and, then, the schedule has been made relatively certain. This helped reduce pressure of foreign sales.
With regard to valuation, the SET Index at 1,730 points is equal to a price to earnings ratio of 15.7 times at the end of 2018 and, at this point, could attract long-term investors. Based on these elements, the Thai stock market’s downside risk is not much, while the upside for long-term investment has been open. Focus on stock accumulation. We pick BBL, TCAP from the banking group, CK from the construction group and AMATA, WHA from the industrial estate group.
There exist negative external factors extending from interest rates, inflation, trade wars, geopolitical issues and capital outflows from emerging markets to move markets with volatility and all has been linked to the US.
Given its better financial status, growing economic expansion, low inflation at 1 per cent (the lowest in emerging markets), external debt at 32 per cent of the nation’s GDP, its foreign reserves at 43 per cent (the highest in emerging markets) and the country’s current account surplus at 12 per cent (the second-highest after Taiwan), Thailand has not faced as much capital outflow as other countries. Thailand’s economy has still shown good signs after improvements in April’s economic figures like export, consumption, private investment and public spending.
Besides, the EEC Act and certainty of the next election will likely attract foreign capital, and foreign investors’ confidence could promote expansion of private investment. Given the better-than-expected overall outlook, KS Research has raised its forecast for this year’s GDP growth to 4.5 per cent. We expect such sound economic fundamentals to support the SET Index to rebound in the latter part of the year to 1,898 points with limited downside risks. Therefore, this is the opportunity to buy for more investment. We pick banking, communications, construction and property stocks.