June 11--Even though Thai shares have climbed almost 4% since the bloodless May 22 military coup on anticipation of an economic recovery in the second half, KGI Securities (Thailand) believes the Stock Exchange of Thailand (SET) index will not really take off until 2015, when the brokerage targets 1,622 points.
"Our view is the Thai market will have a modest upside to its 2014 value but still looks decent for a 2015 recovery," said KGI investment strategist Rakpong Chaisuparakul, adding that the market was taking a positive view on a second-half economic rebound.
He said KGI held a moderately positive view of the SET in the third quarter, as clearer signs of economic and earnings growth improvement coupled with a light position by foreign investors should lead to more foreign inflows.
"We are maintaining our 2014 SET target of 1,489 points based on a price-to-earnings (P/E) ratio of 15 times but also see more of an upside to our 2015 target. Regarding our 2015 GDP forecast of 5.3% growth, earnings per share could increase by as much as 15.9% using our regression model," Mr Rakpong said.
He said US interest rates might begin normalising in mid-2015, which could in turn negatively affect global equities including the Thai market.
Even discounting that factor, the five-year average P/E ratio for 2015 would translate into an SET index at 1,622 points, Mr Rakpong said.
He said foreign inflows to Thai stocks should improve in this year's third quarter now that recent political developments have restored investor confidence.
The economy and corporate earnings will also improve, while global liquidity will remain ample, plus the US Federal Reserve has not signalled it would raise its fund rate any time soon, Mr Rakpong said.
On the euro-zone side, the latest actions by the European Central Bank in cutting deposit rates to negative territory should leave more liquidity in the financial markets.
Last, foreign investors' position in Thailand remains light after a hefty sell-off since mid-2013 due to the Fed's tapering of its quantitative easing programme, the Thai economic slowdown and, most importantly, the domestic political stalemate.
KGI's top stock picks are Krungthai Bank (KTB), Siam Cement (SCC) and Tipco Asphalt (TASCO) on expectations of benefits from timely budget disbursements and public spending; Supalai (SPALI) and CP ALL (CPALL) on improved purchasing power, particularly among the middle- and low-income earners; Amata Corporation (AMATA) on the return of foreign direct investment; and Erawan Group (ERW) on the lifting of the curfew at some tourist destinations upcountry.
The SET index closed yesterday at 1,469.19 points, up 0.82%, in trade worth 65 billion baht.