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Thailand’s Stock Market Bags 20% Return Till Date
Perspective | 21 August 2014

For the past year, the Stock Exchange of Thailand (SET) was tested by challenges from both at home and abroad. Domestic political turmoil temporarily dampened investor confidence.

This was worsened by a series of QE tapering announcements and subsequent emerging market distress. Nevertheless, the Thai stock market proved its resiliency as it recently rallied to a fourteen-month high gaining approximately 20 percent from the beginning of the year on the back of
strong fundamentals: corporate profitability, a deep and diversified market and economic policy continuity.

The underlying potential of Thai corporates has always been strong. The quick rebound of the market validates this. Revenue and profits of listed corporates were little affected by economic slowdown, growing favorably by 16 percent in the second quarter of 2014.

This was partly due to the ongoing trend of Thai corporates investing directly abroad. Foreign revenue reached 40 percent of total revenue of listed firms that disclose such information in their annual financial reports.

On overall, Thai stocks proved to be largely discounted over the past year from QE tapering and domestic political unrest. Should the economy pick up over the rest of the year as projected, this could only pose upside gains for corporate earnings.

Among regional peers, the Thai stock market is notable for its liquidity and diversified investor base. These traits added to its resilience in the face of turbulence.

As foreign investors sold off amid domestic political turmoil and global risk aversion, local investors: both retail and institutional, took advantage of buy opportunities and balanced the market.

Once political stability returned in early June, the market rebounded as foreign fund flows gradually returned and retail investors emerged from their wait-and-see mode.

Going forward, the outlook for deeper foreign investor participation is positive. As the advanced economies recover, foreign funds are likely to seek out higher returns in emerging markets, Thailand included. (You can find out how to sieve out such opportunities here

Thailand’s macroeconomic fundamentals have always been sound, although they were previously obscured by political turmoil and policy uncertainty.

The military intervention has lifted the 6-month long political deadlock. The now ruling body, the National Council for Peace and Order’s (NCPO) political roadmap aimed at restoring democracy and an economic policy framework composed of growth-friendly policies brought back private sector confidence.

As a result, the SET index surged, surpassing its level at the onset of the protest last October and gaining now by 27 percent from its trough; the average daily trading value bounced to more than 52.8 billion baht in July from about 32 billion baht earlier this year.

Going forward, the NCPO and subsequent governments need to proceed on:

  1. Implementing infrastructure investments to boost the country’s potential, support
    regional connectivity, and enhance logistic efficiency;
  2. Maintaining free flow of capital and free trade as well as fostering border trade;
  3. Ensuring fiscal discipline within the fiscal sustainability framework; and
  4. Enacting comprehensive reforms to enhance long-term competitiveness.

Indeed, it appears markets have already given their vote of confidence to the encouraging steps taken in the reform process.

The strong fundamentals of Thai corporates and the Thai economy as well as significant reforms in the pipeline would then underline the Thai stock market as the market of choice for all—foreign investors included.

*This article is brought to you by Maybank Kim Eng. You can check out an exclusive seminar on how to navigate the Thai market and take advantage of this undervalued situation here.

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