Brokerages have begun sending warning signals to investors, as the Stock Exchange of Thailand (SET) Index has surged past the level supported by fundamentals.
Adisak Kammool, vice president for economics and strategy at KGI Securities (Thailand), yesterday said his research house had set the SET range for the second half of the year at 675-863 points, compared with 736-790 based on fundamentals.
"The SET Index has now risen beyond the fundamentals. The sharp gain can be attributed mainly to foreign capital inflows while the fundamentals remain unchanged. We predict that listed companies' earnings growth this year will plunge into negative territory of 3.5 per cent," he said.
Shares continued climbing on the flood of foreign capital. The SET Index started yesterday with a gain and briefly dived into negative territory before returning to end at 825.45, off the day's peak of 829.57.
Turnover was heavy again at Bt40.03 billion. Foreign investors were still net buyers at Bt5.81 billion.
The stock market turned bullish in late May on foreign investors' growing optimism that the country's economy would pick up strongly following the general election. The bourse marked a fresh high since January 1997.
Bank and energy stocks were the top gainers. Krung Thai Bank rose 8.53 per cent to Bt14, PTT was up 2.11 per cent to Bt290 and Bangkok Bank rose 1.59 per cent to Bt128.
Bank of Ayudhya bucked the trend by sliding 5.08 per cent to Bt28 after a sharp rally yesterday.
KGI's Adisak said the SET might drop below 800, because foreign investors, who have so far accumulated more than Bt100 billion worth of shares this year, might take profits if banks' second-quarter earnings prove disappointing.
Banks are scheduled to start reporting their unreviewed second-quarter net profits on July 19. KGI predicts that listed companies' net profits will return to growth next year, rising 8.3 per cent to Bt509.86 billion. That will likely push the SET to 930 points next year, he said.
Banks are expected to be the best performer next year, with a 21.3-per-cent increase in net profits, up from this year's 15-per-cent rise.
Communications will follow with growth of 11.1 per cent in earnings next year, compared with 5.5 per cent this year.
The brokerage estimates that gross domestic product will increase 4.5 per cent this year on the back of accelerated government spending and solid export expansion.
Private investment will start to recover, while domestic consumption will remain sluggish, due to the resurgence in oil prices, he said.
Siam City Securities assistant managing director Sukit Udomsirikul said investors should be prudent in snapping up shares, because the capital inflow had been the main cause for the sharp rise.
"Investors should be more careful about stock investment, because something unexpected might happen across regional stock markets. Funds have been flowing around the region. The Thai stock market has risen 20 per cent so far this year, close to the gain in regional markets. Therefore, the Thai bourse is no longer the laggard."