SCB Securities Co., Ltd. (SCBS) is optimistic about the growth potential of the Stock Exchange of Thailand in 2017, forecasting that the SET composite index will continue rallying and touch 1,700 points driven by investment in infrastructure projects by the public and private sectors, economic expansion propelled by recovered exports and increased local consumption, and recovering oil and commodity prices.
SCBS Investment Strategy Department, Research Group, Senior Vice President. Isara Ordeedolchest said 2017 will be another promising year for investment in the Thai stock market following impressive market growth of 20%, the highest in the region in 2016.
In the midst of the expected economic and political uncertainties this year, governments worldwide had begun to signal the adoption of fiscal policies to stimulate their economies. This policy implementation should produce more fruitful results than the injection of liquidity adopted by the central banks over the past several years. A projected oil price recovery has fueled commodity prices, particularly farm product prices in Thailand. Under the circumstance, the inflation rate is forecast to turn positive and meet the Bank of Thailand’s inflation targeting.
The higher demand-driven inflation rate, when combined with the full stream of state investment in infrastructure projects, could generate a new cycle of investment, particularly long-awaited private investment, which will contribute to bullish sentiment in the stock market. By nature, equity investment is seen an effective risk prevention tool when the inflation rate is going up while fixed income investment offers unfavorable returns under the circumstances. Therefore, more investment might be seen shifting to stocks or risk assets.
Mr. Isara said the Thai stock market will continue fluctuating in some periods pressed by external problems. But the situation will not worsen to such an extent that an economic crisis breaks out. He thus believes that external concerns will only affect the market in the short run.
“Under the current circumstance, we project the SET index will rise further as more investors in every corner of the world are shifting to buying risk assets and reducing investment in fixed-income instruments, which often offer unfavorable returns when the inflation rate is on the rise. The Thai stock market should actually trade with a price-to-earnings (P/E) ratio slightly higher than the 3-year moving average. With the plus 1 standard deviation (SD), the P/E ratio is set at 14.7 times. Should we multiply the figure by the estimated forward earnings per share (EPS) of the market in late 2017, which is forecast to stay at around 115-120 baht/share, the SET index is likely to increase to 1,700 points, offering an investment return of around 10-15%. Investors should closely monitor news and information, particularly foreign economic and political news, because it can make stock markets around the world, including the SET, volatile.”
Top picks recommended by SCBS in the first quarter of 2017 are stocks in the construction service, energy, and banking sectors benefiting from 3 main supporting factors: investment in infrastructure projects by state and private sectors, an oil and commodity price recovery, and economic growth driven by exports and domestic consumption. Picks include: