The Stock Exchange of Thailand (SET) reports that foreign investors have been exerting pressure on Thailand’s stock market by offloading shares worth close to 100 billion baht in the first five months of 2023.
Relevant Lessons
In the first five months of this year, foreign investors dumped Thai shares worth roughly 100 billion baht due to rising global interest rates and uncertainty around the formation of the new government.
The Stock Exchange of Thailand expressed optimism that the recent lowering of the US debt ceiling could improve the mood across the world and entice investors to purchase more Thai stocks as a result of the country’s strengthening economy.
As long as SET’s forward price to earnings ratio (P/E) remained below the historical average, it attracted the attention of both individual and local institutional investors, who bought with a net position from January to May.
global interest rates are rising
Rising global interest rates, a lack of political stability, weak business earnings, and a declining baht are the key causes of the outflow of foreigners. Due to their inferior performance and pricing compared to their regional peers, Thai shares are now less appealing.
Rising global interest rates have caused foreign investors to move their money from emerging nations to developed ones, where they can earn higher returns and incur fewer dangers. The US Federal Reserve has increased its benchmark rate three times since December 2022 and has hinted at additional increases as the largest economy in the world experiences an uptick in inflation and economic growth.
Political unpredictability
As Thailand waits for a new government to be formed following the May 14 election, political uncertainty has also dampened investor optimism. No party was able to achieve a clear majority in the lower chamber of parliament, making the election results inconclusive.
The pro-military Palang Pracharath Party (PPRP) sought to establish a coalition government, but was opposed by the anti-junta Pheu Thai Party (PTP) and the new Future Forward Party (FFP), which received support from young voters.
Insufficient corporate earnings
The slow growth of Thailand’s economy in 2022—2.6% instead of the 4% the government had hoped for—was reflected in weak business profitability. For listed companies, the fourth quarter of 2022 experienced a dramatic fall in profits, particularly in industries including energy, finance, tourism, and consumer goods. Thailand was severely impacted by the coronavirus outbreak in early 2020, which also had a negative impact on exports and internal demand.
Foreign investors’ problems have been made worse by the weakening baht, as currency losses have reduced their returns. Since the beginning of 2023, the baht has declined by nearly 5% against the US dollar as a result of capital outflows and a growing current account deficit that have put downward pressure on the exchange rate. While the Bank of Thailand has intervened to reduce volatility, it has refrained from taking drastic steps to defend the baht.
What comes after for Thai stocks?
Despite these obstacles, some experts think that Thai equities may recover in the second half of 2023 if some of the negative factors fade and favorable triggers materialize.
The establishment of a trustworthy and stable government that can carry out measures to promote investor confidence and economic growth is one potential driver. The PPRP has asserted that it has enough senatorial support and backing from smaller parties to create a coalition government, but it still has to contend with opposition from the public and judicial challenges. It might lessen some of the political unpredictability and open the path for continued policy if the PPRP can get through these barriers and quickly establish a government.
Thailand’s economy, which is predicted to improve as a result of both internal and foreign causes, is another possible stimulus. Stronger global demand and commerce, particularly from Thailand’s major trading partners like China, Japan, and the US, could benefit the country externally. As the government increases its infrastructure spending and stimulus measures, Thailand’s domestic consumption and investment could improve.
A third potential driver is an increase in corporate results, which may draw more investors to Thai equities. Analysts predict that in 2023 earnings growth would increase up, propelled by industries like technology, healthcare, real estate, and construction. Spending more on public works, urban development, health care, and innovation could be advantageous for these industries.
The strengthening of the baht is a potential fourth driver, which would help foreign investors recover some of their currency losses. The baht might gain strength if Thailand’s current account surplus widens once again as exports improve and imports slow. As international investors sense greater value and opportunities in Thailand’s economy, they may decide to acquire Thai equities and bonds, which would boost the value of the baht.
