Rakpong Chaisuparakul
investment strategist, KGI Securities (Thailand)
Thailand underwent another military coup in May 2014, followed by the creation of an interim government led by general Prayuth Chan-Ocha. The new cabinet has been in place and is expected to stay in post for one year to implement political reform before calling a new election, possibly in late 2015.
Thailand’s stocks generally did well after the coup, as political stability returned. Similarly, the end of turmoil from late 2013 to early 2014 directly boosted market fundamentals. The new cabinet is likely to administrate the Bt2.58tr ($80.38bn) budget to stimulate Thailand’s gross domestic product (GDP), with double-track rail and mass rapid transit rail projects among the urgent to be implemented starting in late 2014.
The research team at KGI Thailand expects Thai GDP to grow 1.9% in 2014, before accelerating to 5.3% next year. Similarly, SET (Stock Exchange of Thailand) earnings growth may be below 8% growth in 2014 but could rise to above 16% in 2015. While the SET’s rally in the past three months since the coup means that near-term upside is moderate and volatility is high, we still see Thailand’s market to enjoy a sustained uptrend into 2015.
In 2015 we expect the industries related to stronger domestic consumption and investment like banking, property and construction to continue outperforming. In addition, the hotel and airline sectors should have decent momentum in the coming three to four months when Thailand enters its high tourism season.
Herald van der Linde
Asia equity strategist, HSBC
We are overweight on Thai equities. The economy is getting back on track after the slowdown that followed the political unrest and the subsequent coup in May. Improving business sentiment coupled with increased fiscal spending and supportive monetary policy is helping the market. The MSCI Thailand index has returned 17.6% year to date, making it the fourth-best market in the region. It is up 3.7% in the third quarter so far, outperforming the broader regional index.
The outlook for real estate is improving. The property sector index has gained momentum on expectations of improved home buyer confidence. Developers are more optimistic too, as reflected in the rising Housing Developers’ Sentiment Index. The number of new residential units launched in Bangkok and Greater Bangkok in May was 8,412 (Bt26.6bn in sales value) versus a monthly average of 5,650 (Bt18bn in sales value) between January and April 2014.
Retail sales are showing signs of stabilising too. Although they continue to fall on a year-on-year basis, the pace of decline has slowed. We expect to see a turnaround from here. Thai telecom companies also look attractive on a fundamental basis. They have a defensive revenue base with limited SMS exposure. We expect them to continue to record the best wireless data and Ebitda (earnings before interest, taxation, depreciation and amortisation) growth in Southeast Asia due to latent demand and regulatory cost reforms.
In the long term, the main issue which needs to be addressed is that Thailand appears to be losing competitiveness compared to other markets. In the short term, there is a risk that the country’s economic recovery might prove to be slower than expected.
Overall, we continue to like the growth potential of Thai equities. The market offers a good dividend yield, earnings could surprise on the upside and valuations are still not too expensive. We think any correction in the near term would only add to the attraction of this market.
Mixo Das
equity strategist, Asia ex-Japan, Nomura
Pricing out of domestic political uncertainties has been a key driver of the 12% gain in the SET index since the May 22 military coup. During this time the junta has mostly been repairing the damage left by the political stalemate and restoring confidence. Thus, junta leader and now prime minister Prayuth Chan-ocha’s new economic team has a broad range of policy priorities aimed at reinvigorating the economy. Additionally, the 2015 fiscal year budget, which projects a deficit of 2% of GDP, is likely to be passed before the fiscal year begins in October.
However, on the back of these improvements, Thai equity valuations have climbed. The MSCI Thailand now trades at 13.1 times forward earnings, which is a 12-year high and two full standard deviations above its long-term average.
With the positives thus potentially priced into market valuations, we are wary of downside risks. With the appointment of Prayuth as prime minister, we believe the reduction of uncertainties have largely run their course and market focus is now shifting to the time-consuming and complicated reform process, as well as actual execution on the government’s economic plans. In terms of the latter, delays in approvals of projects and still-evolving funding plans highlight risks.
Overall, we recommend being tactically underweight the Thai market, with a preference for the infrastructure related sectors such as building materials, contractors, industrial estates and property.
Daphne Roth
Asia equity strategist, ABN Amro Private Banking
We are currently overweight the Thai equity market, which has continued to outperform MSCI Asia Pacific. On one hand, the outperformance since the beginning of the year led to valuations becoming expensive. The market is currently trading at two standard deviations above its long-term average. We believe the demanding valuations will cap performance.
On the other hand, foreign investors hold 33.4% of Thailand’s shares, their lowest level of ownership since mid-2009. A change in sentiment could therefore support a continuing rally.
With a new prime minister in place, political uncertainties have been reduced significantly. Market expectations call for a new government by September 2014, which could pave the way for martial law being lifted. That would further support tourism and foreign direct investments into Thailand. A new constitution is anticipated to be in place by the second quarter of 2015, with the possibility of a planned election in October 2015. Execution risk, however, remains the biggest threat to this scenario.
The budget for fiscal year 2015 was approved in the first reading. Although the pledged rice payments to Thailand’s farmers have been made, no further populist measures have been mentioned. Consequently, rural spending is likely to be affected by falling rural incomes, exasperated by dropping agricultural prices.
We are overweight banks, properties, consumer staples and utilities. Improved business confidence and consumer sentiment will boost earnings growth for banks. Residential property sector valuation remains undemanding and pre-sales have picked up in the last two months. We avoid hotels and contractors because of high valuations; and we dislike the aviation and telecom segments due to intense competition.