Published on October 12, 2007
Capital totalling at least US$10 billion (Bt342 billion) is expected to flow into the Thai stock market this year, says Fiscal Policy Office (FPO) director Wetang Phuangsup.
He said this was due to a lingering lack of investor confidence in the value of the US dollar.
His statements yesterday coincided with a stock-market rally of 1.6 per cent, reaching a 12-year high of 889.06 points. Turnover was brisk at Bt33.92 billion. Foreign investors have bought Thai shares with a net position of Bt11.39 billion since early last month.
Greater capital inflows into Asian bourses, including the Thai stock market, will be seen next year as investors' confidence in the dollar continues to be subdued and they diversify their investments into other countries, particularly in Asia, Wetang said.
He was speaking in a seminar entitled "Portfolio Allocation for Profit: Preparing for the General Election".
He estimates about $9 billion has flown into the Thai stock market in the past eight or nine months and that the amount will reach $10 billion by the end of the year.
The massive capital inflow has been blamed for the sharp appreciation in Asian currencies, including the baht, and it may hurt growth in the region's economies, because they rely mainly on exports.
There are nine or 10 Asian currencies that are more stable than the dollar, because their combined international reserves account for 60 per cent of total global reserves, he said.
The continuing sub-prime mortgage problem in the US will be another catalyst for capital inflow to Asia.
Wetang warned that the capital inflow might stall if there was a bubble in the Chinese stock market. Given the sharp rally in the Chinese market, he was most concerned about how much further north the market could go.
The red-hot Chinese stock market has chalked up a 400-per-cent rise in the past two years, while its price-to-earnings ratio exceeds 30 - triple that of the Thai bourse.
Trinity Securities deputy managing director Visit Ongpiattanakul said if the US Federal Reserve cut its policy interest rate at its October 31 meeting, then it would reflect a fully blown economic slowdown in the US, and money would be shifted from there to emerging stock markets, including Thailand's.
"A half-percentage-point cut in the overnight Fed Fund rate at its previous meeting is the major force behind capital that is flowing into Asia. So we must keep our eyes on the Fed and whether it will cut the rate further. If it holds the rate at 4.75 per cent, a portion of the capital might flow back into the Wall Street market," he said.
Visit said the Thai Stock Exchange of Thailand (SET) Index was highly likely to hover around 900-940 points ahead of the Fed's meeting at the end of the month.
Based on its track record over the past three general elections, starting from the one in 1996, the SET Index is expected to surge one month ahead of the poll, he said. Bank, finance and communications stocks were at the centre of the previous rallies, and they all offered greater returns than the SET Index movement, at 5.9 per cent on average, he said.
He recommends investors allocate half their stock-investment portfolios in debt instruments and half in cash.
Bualuang Securities deputy managing director Padermpob Songkroh echoed the FPO's view by saying capital inflows next year would tend to be higher than those this year, following formation of the new government.
He said he hoped the next government would ease or revoke the 30-per-cent capital requirement, as this would be a blessing for the Thai bourse.
"We must consider whether the new government will abolish the 30-per-cent capital requirement. It is the highest rate in the world. Its repeal would be a good factor, not a bad factor.
"Regarding the capital inflows next year, it will become clearer two months after the next government is set up," he said.
Keith Neruda, head of Thailand research for global financial-services firm UBS, said in a recent report that changes in local buying behaviour were the main reason the Thai market could rerate sustainably above the recent trading range of its 33-per-cent price-to-earnings discount to Asia.
Also, low growth and political uncertainty are unlikely to last throughout next year, even though economic growth may remain weak, he said.