The slide in the Thai stock market in the previous two days was a minor correction after the massive 27percent yeartodate rally, securities experts said yesterday, while predicting that the exchange looks set to continue its bull run with continued capital inflows.
Yanyong Thaicharoen, director of the Stock Exchange of Thailand's Research Institute for Capital Market, believes foreign capital will keep flowing into the Thai bourse, after foreigners' purchases outpaced sales by Bt5.375 billion in the first eight months of this year.
Foreign funds inflows are expected to continue into 2011, thanks to the robust growth in Asia against fragile recovery in the rest of the world, he said.
Comparatively, inflows to the bond market during JanuaryAugust totalled US$3 billion (Bt98.17 billion).
Yanyong said the inflows could reverse if there is a hiccup in the European economy or a debt crisis in a country. This could encourage investors to shift investment to lowerrisk assets such as gold.
Meanwhile, in focus are the interestrate policies in the United States and Europe. He noted that the Thai economy was showing growth, but without new investment projects foreign investors could lose interest in Thailand.
SCB Securities said in its research that after the massive increase, which has placed Thailand side by side with Indonesia as the bestperforming Asian market except Japan, a correction was not a surprise.
"We pointed out earlier that the yeartodate outperformance of the Thai market against Asia exJapan is not worrying, as it is merely a normalising process after the massive underperformance during 200407; relative to Asia exJapan, the SET Index is only 3 per cent above the average for the past decade," SCBS said.
"Similarly, comparing the Thai market and economic components against their exponential trends does not show worrying signs of bubbles - for that matter, we never really seem to have had one since 1997."
SCBS is of the view that domestic demand looks better than external, and this would increase the attraction of "domestic play" stocks, which stand to gain from the increases in domestic consumption and investment.
"The strong economic growth seen so far this year is reflective of the lowbase effect, but still, the rise is not significantly above the longterm trend; on the contrary, investment in real terms is merely back to 1993 levels and still below the post1997 growth trend. Our house view of 3.54.5 per cent GDP growth in 2011, slowing from 6.57.5 per cent this year, reflects the absence of the lowbase effect and appears to be well supported by the underlying trends."
Recent developments on Map Ta Phut, the upcoming 3G auction and tourism recovery all bode well for next year's growth outlook, it noted.
DBS Vickers Securities (Thailand) also maintained the view that the SET Index would hit 1,100 points in the next 12 months. It noted that the market is still relatively cheap, trading at 11.4 times the 2011 priceearnings (P/E) ratio, which is below its historical average of 13 times.
"While nearterm correction is likely after the recent rally, we believe the upward trend should continue. We remain positive and revised our 12month SET Index target to 1,100, based on 14 times 2011 P/E, which suggests 20 per cent upside from the current level," it said.
Banking, industrial property and constructionmaterials stocks will gain the most from this rally, DBS predicted.
DBS earlier revised upwards its 2010 economic forecast from 8 to 9 per cent, as the economy rides well, unaffected by the European storm while the political unrest has failed to stunt growth.
While banks should be prime beneficiaries of the recovering economy, the strong rebound in foreign direct investment in Thailand would directly benefit industrial property companies, which are now seeing a strong pickup in land sales. The investment cycle will return next year for construction material companies.