Despite The Thai market having recovered by 3.9% so far in 2019, we expect it to continue to gain momentum in the next six months, underpinned by improving growth outlook for EMs led by China. Easing global risk profile and expectations of a weaker USD down the road will trigger inflows into EM equity markets, Thailand included. In addition, expected more stable Thailand's political landscape after the general election would also encourage more foreign investors (Fa-Rang) to return to the Thai equity market.

Global markets have made a good come back

Global financial markets have been on a roller coaster ride since 2018. The MSCI World Index had tumbled 15% in 2018 but gained more than 12% in the first two months of 2019. The Thai market had been more lackluster, gaining only 3.9% in the same period. Nonetheless, this appears to reflect fundamental changes that ranged from lower risk of a global recession in the medium-term, less aggressive US interest rate tightening path, as well as positive developments in US-China trade talks.            

Narrowing economic growth differential between US and EMs

Despite the encouraging news floating around, one fact that we cannot ignore is the slowing global economy. Hence, the key challenge for policy makers remains to foster a soft landing so growth would not drop too far below potential. On a more positive note, we expect growth differential between the US and EMs (emerging markets) to narrow this year as the impact of Trump’s fiscal policy starts to wane. Coupled with the Fed’s more dovish stance, suggest the US dollar would soften in the coming periods. This will increase risk appetite for EM assets. 

Thailand’s core strength remains well intact

The Thai economy is slowing along with global peers, but the domestic economy continues to operate at well above trend. Combined with established external stability, these will put the Thai market back on the radars of international investors. On the subject of economic safety net, Thailand should have sufficient fiscal and monetary policy space to deal with risks of a more prominent global economic slowdown.

Expect meaningful fund flows to Thai market   

In 2018, the SET lost Bt290bn in market capitalization following strong foreign fund outflows triggered by (1) Trump’s protectionist campaign and trade-war with China; (2) record-breaking SET returns; and (3) central banks’ hawkish monetary policy stance. These led to risk-off sentiment and poor returns from risky assets around the world. This year, after delving deeper into macro leading indicators, especially in EMs, we are more confident that foreign funds will return to EM equities. This would be driven by stronger China and EM economies, a weaker USD, excessive foreign outflows, and expectations of a stable political scene in Thailand. We expect stocks that are on foreign investors’ radars, especially cyclicals and laggards, to outperform. Top picks are CPALL, IVL, MTC, SPRC and TOP.