HSBC is bullish on the prospects of Thai shares thanks to supportive monetary policy, expectations of growth surprises, abating political risks and valuations that support earning growth of listed companies.
As its investment strategy for the third quarter, HSBC overweight Thailand, along with Taiwan and China.
In its research note, inflation is not a worry yet, while political risks seem to be abating as fugitive prime minister Thaksin Shinawatra's return to Thailand seems to be a matter of "when" rather than "if". HSBC economists believe rates will remain on hold for the most part of the year and expect a 25 basis points increase in the fourth quarter. "Monetary policy is supportive for now, but we expect higher rates in 2013."
The economic house admitted that listed companies' first-quarter results surprised analysts on the upside and they are now busy raising their numbers. Consensus expects sales growth equal to the nominal GDP growth of Thailand, looking for 8.4 per cent sales growth and 6.6 per cent growth on EBITDA.
"The contraction in margin is presumably a reflection of wage cost pressure. EPS are expected to grow faster as tax benefits are being factored in. Growth could surprise on the upside as the post-flood recovery extends longer than expected into the second half of 2012. This could allow for the delivery of even better EPS growth."
Good corporate profit growth, low investment in the last few years, a relatively stable political environment could pick up again in the second half. Loan growth has been at around 12-14 per cent, with many banks looking to step up lending to Thai SMES.
"So, despite the devastating floods and global macro uncertainties, banks' earnings still look resilient. Within Asean, we believe Thai banks' currently offer the best the best investment proposition."