Kicked when already down, SET looks to rebound
Thai stocks were some of the biggest losers worldwide to start the year, and the looming pandemic has only intensified the local sell-off, write Darana Chudasri and Pathom Sangwongwanich
The Stock Exchange of Thailand (SET) index was battered last week amid a sea of red as relentless news of the coronavirus epidemic sapped investor confidence. What unfolded after the dust settled is that Thailand’s benchmark equity index is ranked among the worst performers in Asia, if not the world.
On a year-to-date basis, the SET index has generated a return of -13%, with a price-toearnings ratio of 16 times. One-year return is also -13%, positioning the Thai bourse alongside regional peers in Malaysia, Indonesia and the Philippines as the biggest losers in Asia-Pacific.
Thailand’s main stock gauge tumbled to its lowest intraday threshold in more than three years on Feb 26, crossing the 1,400point mark as the rising number of coronavirus cases in the country took a toll on investment appetite.
“External factors have caused the SET index to nose-dive significantly,” said Jitipol Puksamatanan, head of investment strategy at SCB Securities.
The downward cycle of petroleum and refinery businesses, coupled with the equity sell-off in the services sector, means the local bourse has little cushion against a heavy sell-off, Mr Jitipol said.
Energy shares contribute a large portion of the SET index, making it prone to external volatility.
“Our weakness is there is hardly any local innovation despite sufficient infrastructure and relatively low financial costs,” Mr Jitipol said. “There is no innovative technology in Thailand, and that is what investors have been investing in during the past five years.”
He said the recent sell-off should be a wake-up call for businesses relying on Chinese capital inflows into Thailand: that they need greater diversification in order to stay afloat during tough times.
Growth prospects are bleak for revenue streams generated by Chinese tourist arrivals after China banned outbound group tours to stem the spread of the virus.
Chinese visiting Thailand via group tours totalled 3.1 million in 2019, making up 28% of total inbound Chinese tourists in Thailand, according to the Association of Thai Travel Agents.
In total, 11 million Chinese tourists visited the Land of Smiles last year, bringing with them spending worth 544 billion baht.
Therdsak Thaveethiratham, senior executive vice-president of Asia Plus Securities (ASP), said sentiment around the Thai bourse this year is not much different than last year.
In 2019, Thailand’s stock market was also distorted by foreign net selling to reallocate money from risky assets to safe-haven counterparts, especially government bonds.
Delays in approval of the fiscal 2020 budget also lowered investor confidence by several notches.
Mr Therdsak said the structure of the Thai bourse is also closely linked to commodities, from both the listing companies’ profit structure and the trading price structure.
“The overall picture is the same: GDP growth forecast has been revised down to 1.6% [by ASP] while market earnings have also been revised down and are likely negative against last year,” he said.
The expiry of the tax privilege for longterm equity funds means there’s hardly any incentive to invest in LTFs, making this buffer disappear, Mr Therdsak said.
Still, Soraphol Tulayasathien, senior executive vice-president and head of the SET’s corporate strategy division, remains confident that the index will recover at a fast pace once the outbreak subsides.
The bourse’s rebound will be supported by high-yielding dividend stocks and infrastructure funds reflective of Thailand’s present strengths, Mr Soraphol said.
‘‘ External factors have caused the SET index to nose-dive significantly.
JITIPOL PUKSAMATANAN
Head of investment strategy, SCB Securities