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Thailand’s stock market has been under pressure from foreign investors, who have sold off nearly 100 billion baht worth of shares in the first five months of 2023, according to the Stock Exchange of Thailand (SET).
- Foreign investors sold nearly 100 billion baht worth of Thai shares in the first five months of this year due to rising global interest rates and uncertainties in forming the new government.
- The Stock Exchange of Thailand expressed confidence that the recent easing of the US debt ceiling could bolster global sentiment and encourage investors to buy more Thai stocks on the back of a recovering Thai economy.
- SET’s forward price to earnings ratio (P/E) was still below the historical average, and this encouraged individual and local institutional investors to buy with a net position for the January-May period.
Rising global interest rates
The main reasons for the foreign exodus are rising global interest rates, political uncertainty, weak corporate earnings, and a depreciating baht. These factors have eroded the attractiveness of Thai equities, which have lagged behind their regional peers in terms of performance and valuation.
Rising global interest rates have prompted foreign investors to shift their funds from emerging markets to developed markets, where they can earn higher returns and face lower risks. The US Federal Reserve has raised its benchmark rate three times since December 2022 and signaled more hikes to come, as inflation and economic growth pick up in the world’s largest economy.
Political uncertainty has also weighed on investor sentiment, as Thailand awaits the formation of a new government after the May 14 election. The election results were inconclusive, with no party winning a clear majority in the lower house of parliament.
The pro-military Palang Pracharath Party (PPRP) claimed the right to form a coalition government, but faced challenges from the anti-junta Pheu Thai Party (PTP) and the new Future Forward Party (FFP), which gained popularity among young voters.
Weak corporate earnings
Weak corporate earnings have reflected the sluggishness of Thailand’s economy, which grew by only 2.6% in 2022, below the government’s target of 4%. The fourth quarter of 2022 saw a sharp decline in profits for listed companies, especially in sectors such as energy, banking, tourism, and consumer goods. The coronavirus pandemic, which hit Thailand hard in early 2020, has also dampened domestic demand and exports.
A depreciating baht has added to the woes of foreign investors, who have seen their returns diminished by currency losses. The baht has weakened by about 5% against the US dollar since the start of 2023, as capital outflows and a widening current account deficit have put downward pressure on the exchange rate. The Bank of Thailand has intervened to smooth out volatility, but has refrained from using aggressive measures to support the baht.
What’s next for Thai stocks?
Despite these challenges, some analysts believe that Thai stocks could rebound in the second half of 2023, if some of the negative factors subside and positive catalysts emerge.
One potential catalyst is the formation of a stable and credible government that can implement policies to boost economic growth and investor confidence. The PPRP has claimed that it has secured enough support from smaller parties and senators to form a coalition government, but it still faces legal hurdles and public protests. If the PPRP can overcome these obstacles and form a government soon, it could ease some of the political uncertainty and pave the way for policy continuity.
Another potential catalyst is the recovery of Thailand’s economy, which is expected to benefit from external and internal factors. On the external front, Thailand could gain from stronger global demand and trade, especially from its key trading partners such as China, Japan, and the US. On the internal front, Thailand could see an improvement in domestic consumption and investment, as the government ramps up its infrastructure spending and stimulus measures.
A third potential catalyst is the improvement of corporate earnings, which could attract more investors to Thai stocks. Analysts expect earnings growth to pick up in 2023, driven by sectors such as technology, health care, property, and construction. These sectors could benefit from higher spending on innovation, health care services, urban development, and public works.
A fourth potential catalyst is the appreciation of the baht, which could reverse some of the currency losses for foreign investors. The baht could strengthen if Thailand’s current account surplus widens again, as exports recover and imports moderate. The baht could also appreciate if foreign investors return to buy Thai stocks and bonds, as they see more value and opportunities in Thailand’s market.