FOREIGN investors are expected to boost their holdings of Thai shares if global index provider MSCI proceeds with a plan to include a class of shares held by foreigners in its closely watched emerging markets index.
Stock Exchange of Thailand (SET) president Pakorn Peetathawatchai said that MSCI is conducting a survey on the possible inclusion of non-voting depositay receipts (NVDRs) into its emerging markers index at the next rebalancing of the market gauge.
Should MSCI go ahead with the change, foreign MSCI index funds would likely increase their weightings of Thai stocks in their portfolios, given the large the number of foreign investors that hold Thai stocks through NVDRs, Pakorn said.
Thai stocks make up about 2.5 per cent of the MSCI Emerging Markets Index. NVDRs are depositary receipts issued by Thai NVDR Co Ltd.
Foreign investors own Bt1.15 trillion in Thai stocks through NVDRs, representing 6.78 per cent of the SET's Bt17.03-trillion market capitalisation at the end of January.
By that time, the biggest holdings of NVDRs were in Bangkok Bank, with 645.74 million shares worth about Bt138 billion, followed by Kasikornbank with 552.68 milllion shares for Bt110 billion, PTT with 2.13 billion shares for Bt103 billion, CP All with 812.04 million shares for Bt63.1 billion and Siam Commercial Bank with 346.82 million shares for Bt46.1 billion.
Paiboon Nalinthrangkurn, president of the Federation of Thai Capital Market Organisations (Fetco), said that if NVDRs held by foreigners are included in the MSCI, Thai stocks will gain a larger weighting in the portfolios, given that many foreign funds make their stock picks with reference to MSCI indices.
SET senior executive vice president Soraphol Tulayasathien said that, from January 2 to February 1, some Bt7.3 billion in foreign capital was invested in the Thai bourse and Bt1.8 billion in long-term government bonds. These holdings portend goods signs for the market and reflect foreign investors’ confidence in the prospects for Thailand’s economic expansion, said Soraphol, citing benefits from an easing external environment after the US Federal Reserve left its benchmark interest rate unchanged. Signs of progress on resolving the US-China trade dispute added to the positive sentiment.
Whether foreign capital inflows will continue will be subject to progress on the US-China trade negotiations, other central banks' monetary policies, global liquidity, each country's political developments and the performance of Thai exports, said Soraphol, also citing a rise in the number of foreign tourists, increased private and public investment and political stability. Listed companies' earnings results were another factor in the mix.
In January, the bourse's daily trading turnover rose 15.5 per cent month on month to Bt48.58 billion.
Peerapong Jirasevijinda, chief executive officer of Bualuang Asset Management (BBLAM), said that foreign capital is expected to continue flowing into the Thai stock market if MSCI rebalances its weighting on Thai stocks from 2.5 per cent to 3 per cent for MSCI emerging markets. MSCI will announce any changes in changes in its standard index series in March.
Foreign capital inflows are projected to reach Bt64 billion in emerging markets, particularly the Thai market, which may enjoy rises, Peerapong said.
“The Thai stock market is expected to see limited downward risks, given last year's sharp corrections. Stocks with price to earnings ratios at 13.5-14 times are not expensive. However, drops in crude prices have pressured listed companies' earnings results,” he said.
Forecasts for listed companies' earnings per share growth have been revised down to 4-5 per cent from 8-9 per cent, which could also limit the stock gains.
This year economic growth is estimated at 4.1 per cent, driven by public investment, tourism and domestic consumption. Last year's growth in GDP is expected to come in at 4.2 per cent.
However, Thai exports may slow down from the superpower trade war, while the Thai policy rate is expected to remain unchanged at 1.75 per cent this year.
If Thailand retains its stability after the election, the Thai stock market could see sustained gains, Peerapong said.