Fund Inflows to Propel Thai Stocks Already at Record Valuations

(Bloomberg) -- Thai stocks, already trading at record-high valuations, are poised for further gains as foreign funds invest on optimism Covid-19 vaccines will help the tourist-dependent economy recover, according to Thailand’s biggest private money management firm.

The SET Index could rise by as much as 10% in 2021, said Pornthep Jubandhu, head of investment research at SCB Asset Management Co. The gauge this month traded at about 20 times estimated earnings, the highest on record, according to data compiled by Bloomberg.

“Most investors are optimistic about economic and earnings outlooks, especially in the second half,” Pornthep said. “With vaccine roll-outs, we should see Thailand re-opening its borders to foreign tourists, whose absence has been hard on the economy.”

Thailand is ranked as the most-likely emerging market to beat expectations next year due its hoard of foreign-currency reserves and potential for fund inflows, according to a Bloomberg study.

Foreign funds have poured net $1.1 billion into Thai stocks since the end of October, after 15 straight months of net withdrawals, Bloomberg data show.

Even with a 13% rally this quarter, the SET Index has some catching up to do. Its 11% overall decline this year is second-worst among Southeast Asia’s main equity benchmarks, after Singapore’s.

Still, a surge in local coronavirus cases sent the stock gauge tumbling the most in nine months Monday, while the baht weakened the most among emerging-market currencies. Thailand said it may widen lockdowns to contain its largest outbreak.

Here is a look at how 2021 will likely pan out for other Thai assets:

Currency

Foreign buying of Thai stocks may strengthen the already surging baht, said Komsorn Prakobphol, an investment strategist at Tisco Financial Group Pcl. A strong currency is a risk to corporate earnings, especially among exporters. Reversing baht gains will be difficult, even with new central bank measures that encourage Thais to invest overseas, he said.

The baht is Asia’s second-best performing currency this quarter, and has strengthened 9.6% from the 2020 low in April.

The Bank of Thailand has tried to slow the currency’s gains in recent weeks by raising limits for Thais on foreign-currency deposits and overseas investments. The central bank also said “pre-registration” would be required to better monitor bond traders.

The baht still strengthened last week after the U.S. Treasury included Thailand on a currency monitoring list, but it tumbled the most in three months Monday after a Covid-19 outbreak widened among workers at seafood factories in a province near Bangkok.

Bonds

Concern about central bank’s measures may slow foreign inflows into local-currency bonds, said Win Phromphaet, Bangkok-based chief investment officer of Principal Asset Management Co.

The Bank of Thailand defended its actions on the “forex ecosystem,” saying it has no intention of using the exchange rate to gain an unfair trade advantage.

Foreign investors pulled net $249 million from domestic bonds this month through Friday, on pace for the biggest monthly outflows since May. Tisco’s Komsorn said the exodus may continue amid signs of accelerating inflation -- and potential monetary-policy tightening.

Thai companies, especially property developers, have stepped up bond sales to fund debt repayments and operations amid recession. Issuers are boosting interest rates to attract individual investors because mutual funds and insurance firms are cautious of businesses with low credit ratings, said Principal Asset’s Win.

The spread on 5-year bond yields of private companies with the lowest investment grade and those with top ratings widened to more than 3.3% this month, the most in about a decade, according to data compiled by Bloomberg.

An index of investment-grade Thai corporate bonds has gained 2.7% this year, adding to a 5.7% return in 2019.

©2020 Bloomberg L.P.