THE STOCK Exchange of Thailand has risen unhindered despite the election of Donald Trump as US president and has been climbing since the beginning of the year, on the strength of outperforming corporate earnings.
The SET Index, however, seems to have mixed a dose of caution as Trump takes office today, to provide for a wait-and-watch period.
The index rose by 30 points or almost 2 per cent to close at the peak of 1,572 points yesterday. However, because of recent capital outflows, the baht has depreciated against the US dollar.
Trump’s stated goal to “make America great again” through domestic-oriented economic policies that include tax cuts and higher government spending has led to the rapid appreciation of the US dollar and also triggered an exodus of capital from emerging markets, including Thailand.
Meanwhile, the United States is reaping the benefits of more than US$30 billion worth of inflows to the equity market two weeks after the November 2016 election. Trump’s pledge and policies to boost domestic economic growth might lead to an increase in the key US interest rate.
A brokerage said that if all of Trump’s policies were approved, there might be some more “Trump shocks”. This could lead to a rise in inflation, resulting in an increase in the federal funds rate. Such a scenario would speed up global fund flows and weaken the baht, which has already slid by 3 per cent since the end of last year.
If only some policies were approved, there would be less pressure on inflation and debt, resulting in the US Federal Reserve continuing its quantitative easing. In this case, the baht might depreciate by 1.5 per cent over last year’s rate.
Though “risks from president Trump on trade and rates” is one of the three most important factors for Asia this year, Thailand is among a few Asian countries that are less exposed, according to Credit Suisse’s analytic research.
“In short, we are constructive on growth in Philippines, Indonesia, and Thailand,” the research said.
Many research houses expect the Thai economy to grow by 3-3.5 per cent this year with export expansion of 1-3 per cent.
The research expected most Asian economies to allow their currencies to depreciate against the dollar rather than aggressively defending their exchange rates as inflation is still manageable while export growth remains lacklustre.
SET senior executive vice president Santi Kiranand said he did not think that any external factor related to the economies of the US, the European Union and China would have an impact on the Thai equity market.
“Last year was very good for stock investors and this sentiment is expected to continue this year, as Thai shares are not yet expensive and there is potential for growth,” Santi said recently.
The average price-to-earnings ratio of Thai shares was only 15-16 times. Some asset-management firms, however, suggested that investors adjust their portfolios by overweighting equities and underweighting bonds to avoid the risk of falling price from rising yields. Many brokerage houses recommended stock with “buy” ratings that could benefit from Trump’s economic policy.
Tisco Economic Strategy Unit recently suggested that investors be overweight on stocks in the US market in response to the funds flow.