Market Trends

Thailand's Market Struggles to Ignite Despite Political Changes

(Bloomberg) -- Hopes that Thailand's market would be rejuvenated following the first elections since 2019 have been dampened as key economic indicators continue to fall. Contrary to expectations of a catalyst that would restore economic vitality and entice foreign investment, Thailand is witnessing its fifth consecutive quarterly decline in the benchmark stock index. Foreign investments are retreating and the baht is now second only to one other in the unwelcome distinction of being Asia’s poorest performing currency.

"Thai stocks will need to see a substantial recovery in corporate earnings before we can expect any significant rally," stated Narongsak Plodmechai, CEO of SCB Asset Management Co. With approximately $50 billion in assets under its management, Plodmechai's perspective is an authoritative one on the financial climate. He emphasizes the improbability of witnessing a surge in earnings growth considering the languid state of the economy.

A reflection of the deepening woes is seen in analysts' downgraded corporate earnings projections, now at a two-year nadir according to data compiled by Bloomberg. Consequently, Thailand is increasingly perceived as the least appealing market within Southeast Asia. Another hit to investor confidence is the postponement of a highly publicized fiscal boost, which could have provided some respite to the flagging economic landscape.

Bualuang Securities Pcl, which operates under the auspices of Bangkok Bank, projects the benchmark equity index to oscillate between 1,320 and 1,450 points in the upcoming quarter. This forecast hovers around the current levels, indicating stagnation and uncertainty in the stock market's immediate future.

The outflow of foreign capital is stark, with net sales of Thai stocks by foreign funds hitting $5.5 billion in 2023. This represents the biggest withdrawal since the tumultuous year of 2020. Although this figure is inflated due to asset transfers within the Charoen family for estate planning—accounting for over $1.9 billion—Thailand had already suffered the greatest foreign fund exodus in Asia before this transaction, data from Bloomberg elucidates.

Jessada Sookdhis, CEO of Finnomena Co., an investment management firm handling around $1 billion in assets, observes, "Thai stocks have been out of favor for a while even among domestic investors." These foreign fund withdrawals are likely to exacerbate the negative sentiment towards Thai stocks and without substantial international buying, significant market rallies seem improbable.

Corporate performance further underscores Thailand's economic malaise with earnings falling by 11% in the previous year, as per the stock exchange's reports. Kitpon Praipaisarnkit, a strategist at UOB Kay Hian Securities Thailand Pcl, attributes this decline to lackluster consumer demand, aggravated by high household debt burdens.

The trajectory of Thai Credit Bank Pcl is emblematic of the broader economic challenges. Centered on lending to small enterprises, including food vendors, the bank's stock value has diminished by 10% since its initial public offer last month. Other indicators from the retail sector aren't promising either, with prominent retailer Central Retail Corp. experiencing a 12% stock value decrease this year, while Bangkok Bank has witnessed an 11% decline.

Amid these economic challenges, Thailand's Prime Minister Srettha Thavisin has advocated for a reduction in interest rates, especially as the country's manufacturing sector has been shrinking for 16 continuous months. However, Bank of Thailand Governor Sethaput Suthiwartnarueput has refuted the idea that interest rate cuts could act as a cure-all for the economy's structural issues, choosing to keep the policy rate unaltered in this year's February meeting.

Investors seem to concur with the Bank of Thailand's stance, as evident from the $612.5 million in bond sell-offs by global funds in March. The continuation of net outflows for the fourth month straight signals that investors remain skeptical about an interest rate reduction from the current 2.5%. "The Bank of Thailand's division over the possibility of a rate cut means a less conducive environment for Thai bonds," notes Aditya Sharma, a strategist at Natwest Markets.

Goldman Sachs Group Inc.'s analysts, too, have cast doubts on the baht's potential stability, recognizing considerable risk for the currency to underperform relative to its counterparts. Thailand’s exports are lagging behind those of other nations as it falls outside the influential high-tech semiconductor supply chain.

Domestic politics also cast a long shadow on Thailand's economic prospects. In March, Thailand's Election Commission launched a petition to dissolve the country's largest opposition party for allegedly infringing upon the charter through its attempts to amend the royal defamation law. The outcome of the Move Forward Party's case holds potentially significant implications, as it emerged as one of the most popular parties in the last year's election results. Nomura Holdings Inc. economists, including Charnon Boonnuch and Euben Paracuelles, cautioned that this development could instigate street protests and exacerbate economic disruption.

According to government forecasts, the Thai economy is expected to grow by just 2.2% to 3.2% this year. "The core reasons behind Thailand's lackluster performance relative to peers is the dismal macroeconomic growth outlook in the short term," says Tanawat Ruenbanterng, an analyst at Tisco Securities Co. Furthermore, the markets are disheartened by the government's failure to enact stimulative measures to jumpstart the beleaguered economy.

In conclusion, Thailand’s economic horizon is clouded by compounded challenges that include wavering foreign investor confidence, subdued corporate performance, and political strife that risks destabilizing the nation further. Analysts and market strategists continue to monitor these developments closely, assessing their long-term impacts on investment prospects.

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Image representing Thailand's Economic Outlook.