Growth jump seen breathing life into stocks

A man reads a magazine in front of a stock index board at a bank in Bangkok, Oct 17, 2016. (Reuters file photo)

A takeoff in Thai economic growth last quarter is spurring a rethink on prospects for the nation’s stocks, which have lagged behind their emerging-market peers this year.

Societe Generale SA shifted to overweight Thai equities as the nation reported the biggest increase in gross domestic product in more than four years. The underperformance of the SET Index has been overdone and the potential domestic earnings recovery story means the shares are available at a discount, Amit Agrawal and Rajat Agarwal, analysts at the Swiss lender in Bengaluru, said in a note Monday. Religare Capital Markets Ltd. also became more optimistic.

“We expect strong performance from Thailand equities on this news,” said Nirgunan Tiruchelvam, a director at Religare Capital in Singapore. “Thailand equities are due for re-evaluation,” he said, adding that his top picks included Charoen Pokphand Foods Pcl and Thai Beverage Pcl.

The growth bump could lure more foreign money into Thai stocks, which have attracted only $86 million this year and have largely missed out on the rally in emerging-market equities. But the strong baht — Asia’s best-performing currency of 2017 — could dissuade foreign funds, said Monthol Junchaya, chief investment officer in Bangkok at One Asset Management Co.

The SET Index has increased just 1.8% this year in local-currency terms, trailing gains of 11% in Indonesia’s benchmark gauge and 18% in India. Thailand’s economy expanded 3.7% year-on-year last quarter, beating the median estimate for 3.2% growth in a Bloomberg survey.

Not everyone is changing their view though. The market reaction — the SET index rose 0.2% as of 4.18pm in Bangkok – was fairly muted, said Margaret Yang, a strategist at CMC Markets in Singapore. That could be because the GDP growth was driven more by external factors such as tourism and second-quarter company earnings were mixed, she said.

The reaction to the growth data was subdued as the “market is not cheap,” as it has been supported by demand from local institutions, said Joshua Crabb, head of Asian equities at Old Mutual Global Investors in Hong Kong. The SET Index has a 12-month price-to-earnings ratio of 14.6, compared with 12.6 for the MSCI Emerging Markets Index.

Earnings growth momentum should shift from commodities to domestic sectors in 2018, led by financials, Societe Generale said. The strong GDP figures should support the market amid high domestic ownership and the outlook is positive for this year, said Jingyi Pan, a strategist at IG Asia in Singapore.

“It’s a positive surprise that should offer some life to Thai equities,” said Monthol at One Asset Management, which oversees around $3 billion. “However, it’s still very early for any quick rally because it will take some time for the economic recovery to feed into listed companies’ earnings.”

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