Foreign investors have observed the 10th anniversary of the 1997 financial crisis not with solemn retrospection but with boisterous celebration. Since July 2, they have gone on a wild shopping spree in Thai stocks and propelled the baht to a record 10-year high in the process.
Is the current stock market rally for real, or is it simply a short-term buying opportunity?
"We're on an up trend in full force for real. From our estimate, the SET index should rise to 850-900 points by the end of this year. And next year, the stock market should break the 1,000 barrier," Montri Sornpaisal, the CEO of Kim Eng Securities, said yesterday.
Since the beginning of this year, investors - buoyed by the improved sentiment in Thai politics and global liquidity-driven demand - have been pushing Thai stocks up every day. The Bank of Thailand's easing of its capital-control measures has also helped open the floodgates.
The SET index broke the 850 psychological barrier to close up 1.69 per cent at 858.45, while the baht opened at Bt33.72-Bt33.75 and peaked before noon at Bt33.46-Bt33.47, on heavy dollar selling by exporters.
The unit closed at Bt33.48-Bt33.50 against the greenback.
Bank of Thailand Governor Tarisa Watanagase came out to criticise exporters who speculated on the baht. They had been calling for the central bank to keep the baht weak in order to prop up their sales, yet they were the ones who bought up the local currency and dumped the dollar instead.
Supavud Saicheua, managing director of Phatra Securities Co, said investors have rushed to pile up on Thai stocks because they have become less worried about political risk.
"Besides, the Democrat Party has been coming out to say soothing words that investors like to hear," he said.
But Supavud cautioned that the stock rally here is just a delayed reaction to its lagging the region.
"On a year-to-date basis, the Singapore, Korea, Indonesia and Philippine markets have jumped 20 to 30 per cent. The Thai market is simply doing a catch-up," he added.
During the Thaksin Shinawatra era between 2001 and last year, the Thai market could barely break the 800-resistance level.
Now ahead of a general election due in mid-December, investors are rushing to pour their funds into the Thai bourse because they bet that both political and economic risks have bottomed out.
CIMB said in a research note that after more than three years of trading sideways, the bourse has been technically bullish for the past month and is now making its move.
"This major break-out, supported by strong trading volumes, last week is a likely indication that the Thai equity market has just started a new medium- and long-term up trend, which should be sustained over the next few months," CIMB said in its report dated July 9.
Having passed the 780-800 major resistance levels, due to strong trading volumes, the SET is now facing the next medium target of 996-1,040, it said. The immediate resistance is at 890-900.
In its research comment released yesterday, DBS Group said it has upgraded its forecast for the onshore baht market. "We now expect the onshore US dollar/Thai baht rate to fall to Bt33 a dollar by the end of 2007 instead of Bt34 previously."
Looking ahead, the baht remains under pressure to appreciate from capital inflows into the Thai stock market. Support for the currency is also coming from robust trade surpluses and a re-acceleration in foreign reserves, it said.
Investors are also bullish on the stock market, anticipating a rebound in the economy next year, as well as a faster return to democracy.
However, a local broker who asked not to be named, warned investors not to be overly optimistic in the potential upside of the stock market.
"Normally, the market would correct itself after rising for three or four days. But now, the market has gone up for the past seven to eight days without substantial correction. What will happen if the foreign funds leave the market? Thai stock prices may fall like leaves," he said.
Central bank chief Tarisa said investors remain positive on the market's prospects, thanks partly to the relaxation as the central bank has given offshore players access to onshore baht.
She said regional stock markets have also been facing foreign inflows of US$22 billion (Bt737 billion), compared with $8 billion a year ago.
"Foreign investors have gone in and out of every regional stock market very quickly. Thai investors should be careful about the volatile stock market," she said.